General Principles of Taxation

Question 1

What are the sources of Tax Rules

Answer 1

• Domestic Legislation
• Court Rulings/Case Law
• Domstic Interpretations and guidelines
• Supranational bodies
• International guidelines and taxation agreements

Question 2

What should a good tax system be

Answer 2

Fair
Efficient
Convenient

Question 3

What is domestic legislation

Answer 3

Important rules written into Annual Finance Acts and other larger acts- focus on particular area of tax

Question 4

What is meant by court rulings/case law

Answer 4

Legislations supplemented with case law - particular scenario disscussed and rules are applied to that

Question 5

What is meant by domestic interpretations and guidelines

Answer 5

• Supplementary guidance by tax authorities for interpretartations and application

Question 6

What is meant by supernational bodies as a source of taxation

Answer 6

• Created where groups of countries agree to have same rules
• rules created by these bodies (directives)

Question 7

What is meant by international guidelines and taxation agreements

Answer 7

• International tax treaties
• Where complany operates in multiple countries
• Treaties between countries to determine how tax is profites and relived

Question 8

What are some examples of record keeping documentation for taxation

Answer 8

• Company income tax and capital gain taxations , employee pay, sales and purchases subject to tax,

Question 9

What tax violitiations might lead to penalties from the tax authority

Answer 9

Late filing of forms or returns
Errors on forms or returns
Late payment of monies due

Question 10

What powers do tax authories have

Answer 10

• To review and query filed returns
• Request special reports on returns
  -To examine records
• To enter and search
• Permission to exchange informaiton with tax authorities in other jurisdictions

Question 11

Define tax evasion

Answer 11

Way of paying less tax by ILLEGAL methods
Taxpayer seeks to pay little tax by deliberately misleading tax authorities
- false information/surpressing information

Question 12

Tax avoidance DEfine

Answer 12

Way of arranging your affairs to take advantage of tax rules to minimise level of tax that is payable
- Referred to as tax planning

Question 13

What is meant by direct taxation

Answer 13

• Charged directly on the person/entity
  -Tax arised when income is made

Question 14

What is meant by indirect tax

Answer 14

• Tax charged on the final consumer of the goods/services on consumption or spending eg.VAT

Question 15

What is meant by taxable person

Answer 15

• Person/Entity liable to pay tax

Question 16

What is tax Gap

Answer 16

• The gap between the tax theoretically collectable and the amount actually collected
• tax authorities work to minimise this gap

Question 17

What is meant by the competent jurisdiction

Answer 17

Tax jurisdiction: power of a taqx authority to charge and collect tax

• Competent: country whose tax laws apply to taxable person

Question 18

What is meant by incidence in tax and what are the two elements of it

Answer 18

• Refers to the distribution of tax burden
  1. Formal Incidence: party that has direct contact with tax authorities and does admin (FORMal-Form filling)

2. Effective Incidence: Party that bears the end cost of tax and pays it

Question 19

What is meant by hypothecation

Answer 19

Revenues of specific taxes to be restricted for specific expenditure

EG. national insurance for health services

Question 20

What are possible tax rate structures

Answer 20

• Proportional Tax
• Progressive Tax
• Regressive Tax

Question 21

What is proportional tax

Answer 21

Tax is same proportion of income as income rises

Referred as flat rate structure

Question 22

What is meant by progressive tax

Answer 22

Tax rate structure where increasing proportion of income is taxed as income rises

Question 23

What is meant by regressive tax rate

Answer 23

Where decreasing proportion of income is taken when income increases

eg. sales taxes