Read the summary and the most important questions on Taxation

• Lecture 1

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• What are reasons that countries levy taxes?

  1. Raise revenue for the government expenditures: the government provides us with public services and those public services need to be paid.
  2. Redistribute income/wealth within societies
  3. Steer behavior 
  
  
  
  Depending on the type of tax, you have different aims with that tax. Some taxes are there to just generate revenue while other taxes are there really to steer behavior. A tax can also pursue multiple aims.

• What kind of specific things do you get in return for your taxes?

  Taxes are collected for the welfare of taxpayers as a whole, but the individual taxpayer’s liability is independent of any specific benefit received. --> You don’t know exactly what are your taxes spend on. It goes into the big budget. Governments need to make sure that the revenue out of taxes cover the costs they have. 

• What taxes exist in the Netherlands?

  -VAT (Value Added Tax) à Raise revenue (redistribute income)
  -Individual income tax à Redistribute wealth, raise revenue
  -Corporate income tax
  -Dog tax
  -Tourist tax (on nights in hotels)
  -Excise duties (energy products, mineral oil, tobacco, alcoholic beverages)
  -Capital gains tax
  -Real estate tax
  -Inheritance tax
  -Water & waste taxes
  -Shareholder level taxes
  -Motor vehicle tax

• What are the three main topics of the public debat about taxes?

  -Wealth redistribution problem (economic growth of different types of companies)
  -Race to the bottom (tax rates) à almost every developed country reduced their corporate income tax rate in the last decade (however, often the tax base is also becoming more broad)
  -Fairness (if companies will not pay their fair share, why would I pay my part?)

• Where are we now in the public debate about taxes?

  We are in the development of more rules, that’s good because some loopholes are being fixed. It also means that the tax law becomes more complex, because there are more requirements and more documents. Transparency and documentation also becomes more important. 

• What kind of impression do media articles give about companies and their corporate income tax?

  
  Media articles make the impression that corporate income tax is a huge amount of the countries income tax and that countries miss out on a lot of revenue when companies avoid tax. However, it is less than people think, usually around 5-8% of the countries tax revenue.

• Does revenue losses from base erosion and profit shifting endanger countries’ budgets?

  Corporate income tax revenue NL: 5-8%
  Corporate income tax revenue USA: 5-8%
  Corporate income tax revenue Germany: 5%
  Corporate income tax revenue OECD: 5-8%
  à The majority of a countries income is generated by VAT. 

• What is the reasoning behind corporate income tax?

  à If an individual get dividend, you can tax it because it is income of that individual. However, a corporation can decide to retain earnings and not give dividends. This way the money never gets at individual level and that is something the government wants to avoid. Therefore the government introduces corporate income taxes. à Initial reason
  à Companies use infrastructure of a country, so it’s normal that a government asks them for a certain share.

• Do companies face reputational consequences from avoiding taxes?

  The article on the slide suggests that there can be reputational consequences for companies. However, the article of Gallemore et al. finds no effect on the reputation and reputational costs, except for a dropped stock price in the month after the company is identified as a tax avoider. 

• Ability to pay principle

  1) Equal income should generate equal tax payment.
  2) Higher income should generate higher tax payment