Even among these five countries there is variety in the way the countries define the tax rate and base. The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work? We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better?
Withholding Worldwide Tax System Go. Wealth Tax. See Jones, supra note , at — See generally, Wolfe D. The United States, which has numerous income tax treaties, as of has wealth transfer tax treaties with only 17 countries. As of , approximately 13 treaties with France, including the treaties with the United States, Canada, Germany, Spain, the Netherlands, and Switzerland, deal with the French net wealth tax or contain provisions to determine the allocation of the tax. See infra text accompanying notes —58, discussing the definition of the value of property by including debt on the property.
For example, in some countries, a commission incurred on a sale of property may not be considered an administration expense unless the will directs the executors to sell the property.
In France, Greece, and Portugal, debt is eductible in full if due by the decedent on the date of death and evidenced in writing, and in Italy if the property to which the debt relates is included in the taxable estate and the debt is proved by an officially dated document. In Norway, Spain, Sweden, the United Kingdom, the United States, and Switzerland, debt is also deductible, but some Swiss cantons limit debt to property that is taxed in the canton.
While debt is normally deductible, in Belgium, debts in the form of mortgages and liens on immovable property located in Belgium are not deductible. See International Bureau of Fiscal Documentation, supra note , at See Id. In Finland, debts secured by immovable property outside Finland and debts related to nontaxable property are not deductible. In Venezuela, debts are not included if declared and recognized in the will or shown in documents privately signed by the principal when no other evidence exists to verify them, nor are debts originating or executed outside of the country unless originated for investment purposes within the country unless the external debt is guaranteed with pledges or mortgages on property located abroad.
See Inheritance and Gift Taxes Law, art. Belgium and several other countries have such a rule. See supra note The unilateral recognition of debt could also be treated as a gift. Nonetheless, a possible mechanism of avoidance still occurs if the decedent incorporates activities and has the company incur the debt, thereby reducing the value of the corporate shares.
Therefore, a look through rule would be necessary to police any form of abuse in valuation through the use of debt. This would include the capital cost of the insurance policy together with an investment return on this capital , as well as the amount that represents compensation for human capital that could have been expected to have been converted to property and passed on to the heirs.
Several countries exempt businesses from transfer taxation. Often, property is valued based on the date it is sold if within one year of death. In contrast, some countries take the approach of providing the tax authority discretionary power to determine the appropriate value of the property transferred if there has been depreciation of value due to the death of the decedent, which might occur for example in the case of a closely held business.
As with all discretionary provisions, the latitude given in tax administration should be circumscribed. In addition, split-interest transfers pose valuation problems that can also reduce the tax base.
See supra ch. The same type of adjustment should be made for the net wealth tax. For procedures on assessment and collection of the tax, See Inheritance and Gift Taxes arts.
This is true regardless of whether the donor or the donee pays the gift tax. If the donor pays the tax, the tax is simply calculated on the value of the property that actually passes to the donee.
A donee who agrees to pay the tax is considered as relieving the donor of liability and as giving partial consideration for the gift, which reduces the amount of the gift that is subject to tax. Thus, the tax is calculated on the net gift amount received by the donee rather than the grossed-up amount, regardless of who pays the tax. The failure to gross up is significant. If a gift is taxed at a rate of 50 percent without grossing up, then of the total amount transferred by the donor gift plus gift tax , the beneficiaries get two-thirds and the government gets one-third.
Thus, there is an incentive for lifetime giving. Other countries have adopted rules requiring a full grossing up of lifetime gifts. When the transferee pays the tax on the gift, the value transferred is the full amount of the gift with no reduction for tax payable by the transferee. When the transferor pays the tax, her liability for tax on the value transferred is taken into account in determining the value of her estate immediately after the transfer so that the amount subject to tax includes both the amount of the transfer to the beneficiary and the gift tax due on the gift.
See Gift Tax Act, ch. In Germany the inheritance tax is generally applied on a tax-inclusive basis, the transferee being liable for the tax. If the donor or testator pays the inheritance tax, then this amount is added to the taxable amount of the inheritance. However, there is an incomplete grossing up in that the tax on this amount is not taken into account, thereby leaving some advantage to the assumption of tax by the donor.
This is somewhat the approach that has been adopted in Ireland. The Irish inheritance tax regime has recently been supplemented with a 2 percent probate tax on estates. For example, in Venezuela immovable property that at the time of the beginning of the estate has been sold by the principal by documents not registered in the public register is included in the estate, except for sales shown by authentic documents authorized at least two years prior to death.
Payment of the gift duty assessed by the donor-controlled company, however, does not constitute an additional gift. In Sweden closely held corporations have been held liable to gift tax when they have received undervalued property and the court has found that those directing these operations have intended to benefit the owners of the recipient corporation. However, absent a precise definition, it could also be construed to mean a reservation in the donor of a power to revoke the gift or to change the persons entitled to possession or enjoyment of the gift if, for example, the gift was in trust.
Thus, if the transferor retains the right to designate who can enjoy the property she has transferred, or if the transferor can change the enjoyment of the property through a power to alter or amend the terms of the prior transfer, no taxable gift occurs. But See Commissioner v. Warner, F. Where the retained interest is in the nature of a remainder, the statute adds back only the value of the remainder interest that is held by the decedent. In the United States cases make a distinction between a retained power and a right to invade the corpus and make withdrawals, with the latter power not treated as a retained power.
See Estate of Kisling v. Commissioner, 32 F. Sales of property by the estate of a celebrity are a perfect example. The property gifted before death would presumably have a transfer tax value based on the fair market value of such property, which may or may not have an increased value due to the celebrity status of the owner.
However, after death the same property may have an increased value because of the celebrity status of the owner, as is illustrated by the auction experience in the United States with the estates of Rudolf Nureyev and Jacqueline Kennedy Onassis. The existence of a legal power to claim the amount transferred is considered sufficient to support the annual exclusion under the U. See Crummey v. Commissioner, F. In addition, each contingent beneficiary is also able to be counted for the annual exclusion if such beneficiary has such a right.
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They would not have the same ability to avoid a wealth tax. Wealth taxes could incentivize more productive uses of wealth. A wealth tax could be challenging to administer.
While some assets, like cash and publicly traded stock have a clear fair market value, others, like privately held businesses or artwork, do not. It would take considerable resources for the IRS and taxpayers to determine these valuations. The very wealthy may try to avoid wealth taxes. If the government creates a wealth tax, the wealthy may have an incentive to purchase more complicated assets.
If this happens, the tax could end up less effective than proponents expect. They could encourage wealthy taxpayers to leave the country. Because a wealth tax is a considerable expense each year, it could encourage the very wealthy to move themselves and their assets to other countries, leaving less of a tax base for the United States. Whether the Warren wealth tax or another like it becomes a reality in the United States depends on action by Congress.
Representatives are currently debating wealth tax proposals , and whether any will pass is hard to say. In theory, however, a wealth tax seems like a good idea for progressives like Warren and Sanders who want more tax revenue to support government programs, but in practice, it may be harder than it seems. Any law would also have to be upheld by the Supreme Court, which may find this tax unconstitutional.
For the average American, however, this tax is more of a hypothetical. Unless you are worth tens of millions of dollars, you most likely do not need to worry about paying a wealth tax, regardless of whether such a measure passes in the U. David is a financial writer based out of Delaware. He specializes in making investing, insurance and retirement planning understandable. Before writing full-time, David worked as a financial advisor and passed the CFP exam.
An eighth senator, Alex Padilla, later became another co-sponsor. Two House co-sponsors, Reps. Pramila Jayapal and Brenda F. Boyle, support a companion bill in that chamber. All are Democrats. Proponents of wealth taxes believe this type of tax is more equitable than an income tax alone, particularly in societies with significant wealth disparity.
Critics allege that wealth taxes discourage the accumulation of wealth, which they contend drives economic growth. They also emphasize that wealth taxes are difficult to administer. Administration and enforcement of a wealth tax present challenges not typically entailed in income taxes. The difficulty of determining the fair market value of assets that lack publicly available prices leads to valuation disputes between taxpayers and tax authorities. Uncertainty about valuation also could tempt some wealthy individuals to try tax evasion.
Illiquid assets present another issue for a wealth tax. Owners of significant illiquid assets may lack ready cash to pay their wealth tax liability. This creates a problem for people who have low incomes and low liquid savings but own a high-value, illiquid asset, such as a home. For a similar example, a farmer who earns little but owns land with a high value may have trouble coming up with the money to pay a wealth tax.
Some accommodations may be feasible to address administrative and cash flow issues—for example, allowing tax payments to be spread over a period of years or creating special treatment for specific asset categories such as business assets.
However, exceptions could undermine the purpose that many attach to a wealth tax: structuring the overall tax system to make all taxpayers pay their fair share. Center on Budget and Policy Priorities. The New York Times. Tax Laws. Wealth Management. Actively scan device characteristics for identification.
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