LS 2 - Basic Concepts and Definitons

Question 1

What is the relation of Business Taxation and Businesses?

Answer 1

• BT investigates the impact of taxes on business variables and operations
• business decisions have tax consequences

Question 2

Give examples for the impact of taxes on business variables

1.
2.
3.
4.

Answer 2

• income tax: reduces profit
• some investments are subject to tax reductions, others not (these are not attractive then)
• determining profit for commercial lax (e.g. current and deferred taxes)
• plays a role in HR -> salary

Question 3

What are examples for tax consequences of business decision?

1.
2.
3.

Answer 3

• location of business (trade tax)
• limited liability company vs sale representative
• financing decisions (e.g. interest payment of loan tax deductible)

Question 4

Definition of Tax?

1.
2.
3.

Answer 4

• payments of money that are levied once or an ongoing basis
• do not constitute a consideration for a special service provided by the state
• imposed by public body by virtue of state financial sovereignity

Question 5

Whats the difference of taxes to fees and dues?

Answer 5

• Fee: public payment which is imposed on a debtor of the fee for individually public services. covers all or part of cost of service. based on principle of equivalence (e.g. kindergarten)
• Dues: levied for provision of a benefit regardless of its actual use. e.g. production of public facilities

Question 6

What are the different ways to classify taxes?

1.
2.
3.

Answer 6

1. according to type of collection: direct (PIT) vs indirect (VAT)
2. according to indicator of performance: income, property, consumption
3. according to competence to collect tax revenues: federation, states, municipalities

Question 7

What are reasons for imposing taxes?

1.
2.
3.

Answer 7

• cover the countrys financial requirements
• using taxes for redistributing money
• using taxes for steering purposes

Question 8

Whats the Ability to Pay principle?

1.
2.
3.

Answer 8

• states that taxes to be levied in accordance with a tax payers ability to pay -> “financial performance is the highest benchmark for the fair distribution of tax burdens”
• measured by income or property (inheritance and property taxes, or consumption)
• allows access and offers protection at the same time (governments has access, and one is protected so that min ability to pay protected to cover minimum costs of living)

Question 9

Whats the minimum subsistence level?

1.
2.

Answer 9

• subsistence level of person not taxed so that everyone has enough resources to cover their basic needs
• done by allowing basic tax allowance to every natural person

Question 10

Most important things to:

1. Legislative
2. Executive
3. Judicary

Answer 10

1. laws passed by bundesrat; tax law binding for everyone; general tax law includes general fiscal code; special tax law for specific taxes (CIT, PIT)
2. bundesfinanzministerium enforces tax laws
3. finanzgericht and bundesfinanzhof

Question 11

What is the accredtion theory and where do we find it?

Answer 11

• its the theory according to which the profit for the profit types of income is determined
• according to this theory, any income is taxed, both recurring income and income from one-off transactions

Question 12

In which different waxs can income from business operations be generated?

1.
2.

Answer 12

• acting as sole prorietor/ sole trader
• being a partner in a partnership

Question 13

Income from self employment | Income determination

The allocation of income and expenses is mainly carried out to the….

1.

meaning…

2.
3.

Exceptions?

4.

Answer 13

… inflor outflow principle (§11 EStG)

…nexpenses are not included in the profit determination when they are incurred but WHEN THEY ARE PAID (matching principle generally not applied)
… the timing of the cash flow is decisive for the question in which assessment period the income/ expenses are considered
Exceptions: deprecitation and consideration of acquistition / production costs