Twain proven right
Indeed, there is no escaping taxes in today's world; much like getting old and facing death at some point, we're doomed to pay no matter what. And virtually everything can trigger tax consequences, regardless of geographical location.
Take tax havens, for example. You may be exempt from paying corporate tax in Guernsey or personal tax in the Cayman Islands, but it will not be for free. Instead of ordinary tax, such havens impose alternative levies, such as duties, charges and fees. Often the total of levies may exceed the level of income tax strategies, which is why for the offshore tax planning to pay off, you would essentially need to move to a tropical island. This implies retirement or clocking such minimal hours in the office that no tax authority can claim taxing rights on your income.
A whole range of events give rise to tax liability, from the obvious - such as earning income - to the more obscure - such as setting up a company or even dying. Theoretically, any act of giving or receiving anything, tangible or intangible, can lead to taxation.
For instance, say your grandmother leaves you her flat. Depending on the jurisdiction, this act of giving on the part of your grandmother would give rise to transfer taxes, for lifetime transfers within the family, inheritance taxes or estate taxes if she is deceased. What if you live in that flat without acquiring title over the property? Don't be surprised if the Tax Man comes in one day and tries to assess the taxable value of your grandmother's will to let you stay in her flat. In some countries, the right to use property can be subject to inheritance taxes. And if that happens to be the case where you live, regardless of your grandmother's fondness for you, the tax assessment of her will is likely to be viewed from the perspective of market rental rates.
The ubiquity of taxes should come as no surprise. Tax has been around since Babylonian times, and history provides the best proof that it is here to stay.
The first recorded evidence of tax dates back to 2350 B.C. Tomb paintings in Egypt depict relentless tax collectors selling delinquents into slavery for failure to pay tax on fish catches and garden produce. The Greeks fought a bloody war against Persia to resist a tribute tax, but then had to impose one to pay for the war.
Ancient Rome had an elaborate tax system which encompassed sales taxes, inheritance taxes and taxes on imports and exports. In the 4th century BC, the Romans built a tax-free shipping port at Delos, which some refer to as history's first tax haven. It was also the Romans who first invented inheritance tax, imposed upon all citizens at the rate of 10 percent, and who introduced imprisonment for tax evasion.
One of the most fascinating stories about tax dates back to 11th century England, when Lady Godiva successfully reduced the tax assessment on her husband, the Earl of Mercia, by riding naked on a white horse through the English town of Coventry. (Try that one on your next appeal to the tax office!)
A couple of centuries later, Switzerland emerged as an independent nation after the Swiss communities joined in a league of mutual assistance to defy the power of the Habsburgs, personified by the military and tax collectors. To this day, Swiss taxes are still determined by way of a popular referendum.
The first income tax, as we know it today, was passed in 1404 in England. It was so hated that all records of its existence were ordered burned by parliament. The French, who later brought us VAT, also had very strong feelings about everything to do with tax, with tax collectors judged guilty of treason and sent to the guillotine during the French Revolution of 1789.
Looking at over four thousand years of history, it is hard to disagree with Mark Twain. Its equally hard to ignore how much taxes have shaped civilization. Although a number of scholars believe that the design of most contemporary tax systems deters dynamic economic growth, for better or for worse taxes will probably outlive all of us taxpayers as long as we continue to coexist in a civilized world.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Take tax havens, for example. You may be exempt from paying corporate tax in Guernsey or personal tax in the Cayman Islands, but it will not be for free. Instead of ordinary tax, such havens impose alternative levies, such as duties, charges and fees. Often the total of levies may exceed the level of income tax strategies, which is why for the offshore tax planning to pay off, you would essentially need to move to a tropical island. This implies retirement or clocking such minimal hours in the office that no tax authority can claim taxing rights on your income.
A whole range of events give rise to tax liability, from the obvious - such as earning income - to the more obscure - such as setting up a company or even dying. Theoretically, any act of giving or receiving anything, tangible or intangible, can lead to taxation.
For instance, say your grandmother leaves you her flat. Depending on the jurisdiction, this act of giving on the part of your grandmother would give rise to transfer taxes, for lifetime transfers within the family, inheritance taxes or estate taxes if she is deceased. What if you live in that flat without acquiring title over the property? Don't be surprised if the Tax Man comes in one day and tries to assess the taxable value of your grandmother's will to let you stay in her flat. In some countries, the right to use property can be subject to inheritance taxes. And if that happens to be the case where you live, regardless of your grandmother's fondness for you, the tax assessment of her will is likely to be viewed from the perspective of market rental rates.
The ubiquity of taxes should come as no surprise. Tax has been around since Babylonian times, and history provides the best proof that it is here to stay.
The first recorded evidence of tax dates back to 2350 B.C. Tomb paintings in Egypt depict relentless tax collectors selling delinquents into slavery for failure to pay tax on fish catches and garden produce. The Greeks fought a bloody war against Persia to resist a tribute tax, but then had to impose one to pay for the war.
Ancient Rome had an elaborate tax system which encompassed sales taxes, inheritance taxes and taxes on imports and exports. In the 4th century BC, the Romans built a tax-free shipping port at Delos, which some refer to as history's first tax haven. It was also the Romans who first invented inheritance tax, imposed upon all citizens at the rate of 10 percent, and who introduced imprisonment for tax evasion.
One of the most fascinating stories about tax dates back to 11th century England, when Lady Godiva successfully reduced the tax assessment on her husband, the Earl of Mercia, by riding naked on a white horse through the English town of Coventry. (Try that one on your next appeal to the tax office!)
A couple of centuries later, Switzerland emerged as an independent nation after the Swiss communities joined in a league of mutual assistance to defy the power of the Habsburgs, personified by the military and tax collectors. To this day, Swiss taxes are still determined by way of a popular referendum.
The first income tax, as we know it today, was passed in 1404 in England. It was so hated that all records of its existence were ordered burned by parliament. The French, who later brought us VAT, also had very strong feelings about everything to do with tax, with tax collectors judged guilty of treason and sent to the guillotine during the French Revolution of 1789.
Looking at over four thousand years of history, it is hard to disagree with Mark Twain. Its equally hard to ignore how much taxes have shaped civilization. Although a number of scholars believe that the design of most contemporary tax systems deters dynamic economic growth, for better or for worse taxes will probably outlive all of us taxpayers as long as we continue to coexist in a civilized world.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
