Tax Stories: Life, Business & Tax

Would you like to know more? Feel free to read ⁠⁠tax blogs⁠⁠ by Janis Taukacs or ⁠⁠resolve here any tax disputes, or even better - plan your tax matters here timely, so you can avoid such disputes⁠.

After thinking if I could invite anyone in the world for an interview, Rita de la Feria was on the top of the list. She is among Top50 of the most influential tax people in the world by the International Tax Review magazine. So, I did not believe my eyes after I saw her reply: „To be completely honest with you, I have been refusing all similar requests.. Having said this, I would like to do this for you.“ And the hour chat with Rita turned out to be not only educating, pleasant and sometimes even fun (did you know that Star Wars Episode I opens by saying that there is a dispute on taxation of trade routes), but one of the most interesting hours spent in my professional career. We spoke about the Minority Report movie as well, BTW. 

On the current system

If one push personal income tax too high, people will stop working. If you push too much on corporate tax, companies will invest in another country. Rita beautifully explains here why VAT is the best tax, if well designed – it should not intervene in the business. In reality VAT systems are often messed up, also in the EU, but it is still the best tax we’ll have also in the future. Special taxes on digital economy most likely are going nowhere. BEPS and other anti-avoidance rules have a short life span, because very good tax lawyers find a way, are always a step ahead of policy makers. Of course, actions that were ok 7-10 years ago are not ok anymore, but mainly for reputation purposes. Companies still have incentives to move in order to pay less taxes, so one has to eliminate the incentives, instead of the anti-avoidance rules. 

On the future

So, where the tax systems will go? Most likely after the pandemic the desperation of countries for investments will be even bigger, so tax competition will increase. So, the digital unilateral taxes are unfortunately here to stay. Ritas’ vision of a corporate system is to tax profits based on where the customer is, like it is applied for VAT. It would prevent tax competition as well – for companies it then would not make sense to move themselves or their IP to a another country, as it would not impact their tax base. In that sense OECD Pillars 1 & 2 are going in the right direction, but they should not change it just for digital economy, cause everything now is becoming a digital economy. This consumer country profit taxation model would basically kill the need of offshores for tax reasons – let’s see how many of the billions will stay there for non-tax reasons then.

On offshores

She sees the way of fighting the tax evasion in pooling administrative resources and the new technologies, like already used in Portugal (the only in the EU), Russia and Israel, e.g. to track transactions as they are happening. When this was introduced in Portugal hospitality industry during its downturn, the revenues in the industry increased by more than 40%! So, administrations have to invest in IT. 

On playing God

A problem with the current system is maintaining and with small fixes of everything that we used to have, instead of a constant questioning of the system, trying from scratch. 

On VAT exemptions

Rita believes that that the latest research across many countries and industries shows that the exemptions mainly benefit the retailers and the rich, as the VAT reduction is often not passed on to prices. As the rich would buy the items anyway the state is not collecting the money it could. Whereas the full VAT rate would end up in the state that could grant distribution to the poorest. Thus she does not support a wider use of the exemptions. Moreover, there are many disputes on what is subject to the exemptions. 

Would you like to know more? Feel free to read ⁠⁠tax blogs⁠⁠ by Janis Taukacs or ⁠⁠resolve here any tax disputes, or even better - plan your tax matters here timely, so you can avoid such disputes⁠.

In this episode Kart Kelder, a tax expert from Estonia with education and work experience in Austria and other countries shares her views about tax issues of wealthy individuals, when a simple holding company may not be enough, is the setup needed abroad or in your own country? We also discussed cultural differences between working in the East and West, and why she prefers the East. Her studies of Art law in NY Sotheby’s Institute come handy in her daily work as well, so her favourite tax related stories come from this area. For example, when a judge needs to decide if a bird without feather and legs is a bird, he makes his decision on a conclusion that “it’s still pleasing to see, and it gives you a feeling of a bird, so it has to be a bird”. She saw tax as a way to play on an international level. We also spoke about the future of offshores and the chances of tax authorities to get access to their assets, about creative ways of using offshores.