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RE: [Intertax] working group on combatting tax evasion

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  • Wetzel Dave
    Cheers Arnold, You write: But let me ask you to play devil s advocate for a moment: what would be the best strategy for a company if it wanted to pay minimum
    Message 1 of 4 , Sep 1, 2005
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      Cheers Arnold,

       

      You write: But let me ask you to play devil's advocate for a moment: what would be the best strategy for a company if it wanted to pay minimum Land Value Tax but still be as profitable as possible?

       

       

      The same as a company wishing to pay minimum rent to a private landowner and make as much profit as possible.

       

      I've just read a booklet written in the 1960s. The author has just died and his wife has circulated the booklet in remembrance.

      He argues that LVT is not even a tax at all. It shares the rent of natural resources with the private owners.

      So any increase in annual LVT means a decrease in net rental income for the landowner.

       

      Companies could all relocate to the Highlands of Scotland or half way up Snowdon (if they can get planning permission) where their rent and LVT would be very low - so their expenditure side of cash flow would be low - but the reason the rental values are low here is because the income side of the cash flow would be low.

       

      Retailers are happy to pay high rents in Oxford Street because the high number of potential customers that pass their door.

      It would be of no interest to these retailers whether they pay all their ground rent to the Duke of Somewhere or a proportion to the Duke and the remainder to the State.

       

      In fact, some already do pay to a public body: Many businesses pay their rent to the City of London who own a substantial number of West End freehold sites. (The City has a  property management office in Conduit Street).  Nobody objects or calls this "a Tax"

       

      I'm circulating this response to other friends, who may have similar questions in their mind - or even a better response than I've tried to put together.

       

       Dave
      Dave Wetzel; Vice-Chair; Transport for London.
      Windsor House. 42-50 Victoria Street. London. SW1H 0TL. UK
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      -----Original Message-----
      From: Cohen Arnold (Exc)
      Sent: Wednesday, August 31, 2005 3:32 PM
      To: Wetzel Dave
      Subject: RE: [Intertax] working group on combatting tax evasion

       

      Dave

       

      Ever since you interested me in the idea of Land Value Tax, I have been intrigued about what disadvantages there might be for a country's economy, given that the advantages are pretty clear. The exchange below does suggest a possible disadvantage, in the shape of the evasion motive.

       

      Companies/individuals wouldn't be able to directly evade tax on the land they own, but I suppose they could have a strategy to avoid high value land. You would point out that they'd be cutting off their noses to spite their faces, as these high value areas could also secure high returns through developments, rents, etc. But let me ask you to play devil's advocate for a moment: what would be the best strategy for a company if it wanted to pay minimum Land Value Tax but still be as profitable as possible?

       

      Arnold

       

      -----Original Message-----
      From: Wetzel Dave
      Sent: 31 August 2005 15:08
      To: 'Sven Giegold'
      Cc: 'Carol Wilcox'; 'Land Café ( lc1)'
      Subject: RE: [Intertax] working group on combatting tax evasion

      Sven,

       

      Many thanks for circulating Detlev von Larcher's paper (reprinted below).

       

      Tax avoidance is only possible when the wealth being taxed is moveable or it can be hidden.

      Most income taxes on unearned incomes fall into this category. Many of the UK's highest income earners (pop stars, racing drivers, business magnates etc.) are resident abroad in low tax jurisdictions.

      Also, taxpayers in the UK can (and often do) demand/negotiate higher salaries in order to pass their income tax burden onto the consumers, keeping their net (take-home) salary at the level they desire. (Even our bus-drivers in London are paid time-and-half for working overtime - which at our rates of tax leaves them with their tax free pay in their pockets). So, it's the punter paying a £1 fare on the bus who pays the driver's income tax - not the bus driver.

      Similarly, sales taxes (GST in USA, VAT in Europe) can be avoided legally by small companies trading below the sales tax threshold or illegally by hiding cash receipts or by off-shore trading.

       

      The one tax that is cheap to collect and impossible to avoid is Annual Land Value Taxation, where each site is valued for its optimum, permitted use and a percentage tax is applied annually.

       

      As the economy improves then the increase in land values will benefit everybody - not just privileged landowners.

       

      In addition, landowners would have an incentive to use their sites productively and not deny people jobs and affordable homes.

       

      Best wishes,

       

      Dave Wetzel; Vice-Chair; Transport for London.

      ----- Original Message -----

      From: "Sven Giegold" <giegold@...>

      To: "Intertax - Liste" <intertax@...>

      Sent: Thursday, August 25, 2005 9:15 PM

      Subject: [Intertax] working group on combatting tax evasion

       

      Dear colleagues,

       

      yesterday we had a very interesting conference on "new sources for developing finance", organised by our ministry of development co-operation. Many of the key people in the German development discourse were present. In a working group on combatting tax evasion  and tax avoidance it was surprisingly easy to reach consensus on a list of measures.

       

      The presence of tax experts from developing countries helped a lot to achieve these results.

       

      Attached you find the results as well as my introductory remarks.

       

      Sven Giegold                          mailto:giegold@...

       

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      *           All participants agreed that it does not make sense to talk about "new sources" of development financing and ignore the "old sources".

       

      *           The most important "old source" is domestic taxation on income, including private and corporate capital income. Unfortunately, this source is continuously shrinking.

       

      *           The first problem is that we are experiencing a "race to the bottom" in taxes on corporate and capital income: States are reducing tax rates to attract (or keep) capital and corporations.

       

      *           The second problem is that wealthy individuals and corporations are able to move their money out of their home countries to evade taxation. 250 billion US$ in public revenue is lost each year through illegal tax evasion. Developing countries lose 50 billion US$ accord to an Oxfam study which includes corporate tax avoidance.

       

      One way to fight these problems is through international organisations. The European Union and the OECD have tried to do so, but the success has been minimal. The tax haven countries in these organisations are able to block any effective measures.

       

      Therefore, it will be necessary for countries which are more determined to move on in a smaller group. There are a number of key measures that can be started on a national, bilateral and plurilateral level without loosing sight of a multilateral solution in the long run.

       

      The working group agreed on a number of measures that should be pursued:

       

      *           Combating international tax evasion and avoidance by stricter enforcement of existing tax rules by new measures (encouraging examples from Ireland, Australia, Buenos Aires )

       

      *           Strict transparency rules which force corporations to list profits and taxes paid according to states and territories, as the minister suggested in this morning.

       

      *           Automatic information exchange on capital income and company ownership structures.

       

      *           Strict application of the residence principle for company taxation as short term goal, minimum tax rates according to national wealth and/or unitary taxation as a long term goal.

       

      *           Step by step renegotiation of bilateral tax treaties to strengthen international tax cooperation.

       

      *           Measures to limit the "shadow economy"

       

      *           Moving towards an "international convention on tax co-operation".

       

      *           Helping developing countries with the implementation of anti tax evasion and avoidance measures.

       

      Detlev von Larcher



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    • Fred Foldvary
      Simply put: Taxes on labor, capital, and transactions make these activities flee, hide, and shrink. But land cannot flee, hide, or shrink. Fred Foldvary Santa
      Message 2 of 4 , Sep 6, 2005
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        Simply put:

        Taxes on labor, capital, and transactions make these
        activities flee, hide, and shrink.

        But land cannot flee, hide, or shrink.

        Fred Foldvary
        Santa Clara University
        USA
      • Ed Dodson
        Ed Dodson (U.S.A.) responding... Dave Wetzel wrote (8/31): Tax avoidance is only possible when the wealth being taxed is moveable or it can be hidden. Most
        Message 3 of 4 , Sep 6, 2005
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          Ed Dodson (U.S.A.) responding...
          Dave Wetzel wrote (8/31):
           
          Tax avoidance is only possible when the wealth being taxed is moveable or it can be hidden.

          Most income taxes on unearned incomes fall into this category. Many of the UK's highest income earners (pop stars, racing drivers, business magnates etc.) are resident abroad in low tax jurisdictions. 

           

          Ed here:

          Some months ago, the U.S. President established a commission to consider propoposals to restructure our Federal income tax system. Our current system, as many may be aware, is quite complex, so complex that leading tax experts often differ significantly when calculating the tax obligations of individuals and businesses using the same source information.

           

          We were invited to submit proposals to the commission for consideration. Mine, attached for those who might be interested, calls for the replacement of the existing tax on individual incomes with a "graduated, flat tax" (not exactly an oxymoron, but a structure that combines simplicity with progressivity without being overly confiscatory).

           

          I welcome any comments.

           

           

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