Tax Law

Question 1

Definition of Tax

Answer 1

A compulsory contribution in monetary (or other) form by individuals, organizations, or entities, received by the government for public purposes (i.e. unrequited).

Question 2

User Charges

Answer 2

Payments for access to a specific public good or service, e.g. connection to the electricity grid.

Question 3

3 Goals of Taxation

Answer 3

Revenue, Redistribution, and Regulation.

Question 4

Taxpayer

Answer 4

A person or entity legally obligated to pay taxes to a government based on income, purchases, or other taxable activities.

Question 5

Service Fees

Answer 5

Payments made for a specific service performed by the government. These are quid pro quo (not unrequited). They’re roughly proportional to the value of the underlying service.

Question 6

Social Security Charges

Answer 6

Mandatory payments made by individuals and/or employers to the government’s social security system, e.g. pensions, unemployment benefits, etc.

Question 7

Income

Answer 7

Any financial gain or revenue earned by an individual or entity from sources such as business operations, investments, or employment, which may be subject to taxation under different jurisdictions.

Question 8

Accretion Approach

Answer 8

A person’s annual income is the value of what she could consume in that year while keeping the wealth constant. It equals to consumption + the change in wealth.

Question 9

Source Approach

Answer 9

A certain item is income only when it derives from a specific source, most likely an economic one.

Question 10

Wealth

Answer 10

The total value of assets owned by a legal or natural person.

Question 11

Global Tax System

Answer 11

The item of income is included in the taxable income unless specifically excluded. All that matters is the accumulation of wealth.

Question 12

Schedular Tax System

Answer 12

An item of income is not taxable unless specifically included in a specific schedule.

Question 13

Tax Base

Answer 13

The amount of money on which tax is imposed. It is determined by deducting deductible expenses and exemptions from the “Gross Taxable Income’.

Question 14

Gross Income

Answer 14

Includes employment, businesses, and investment income. It’s subject to specific inclusion rules to prevent restrictive judicial interpretations.

Question 15

Exempt Income

Answer 15

Certain types of income are excluded from taxation due to social or economic policy objectives, such as retirement contributions, diplomatic earnings, and government allowances.

Question 16

Business Income

Answer 16

Requires a clear definition between business profits and personal income. Some tax systems therefore distinguish between corporate trading activities and professional service income.

Question 17

Investment Income

Answer 17

Covers interest, dividends, rental earnings, and capital gains.

Question 18

Exemptions

Answer 18

A portion of the income is excluded from taxation.

Question 19

Deductions

Answer 19

Expenses incurred to generate income may be deducted, hence reducing the taxable amount.

Question 20

Flat Tax

Answer 20

All individuals or businesses pay the same fixed percentage of their income, regardless of earnings, simplifying tax compliance.

Question 21

Progressive Tax

Answer 21

The tax rate increases as income rises, meaning higher earners pay a larger percentage of their income than lower earners.

Question 22

Marginal Tax Rate

Answer 22

The rate at which the next euro of taxable income is taxed. It represents the tax rate for the highest income bracket that a taxpayer’s income falls into.

Question 23

Effective/Average Tax Rate

Answer 23

The total tax paid as a percentage of total income, reflects the overall tax burden.

Question 24

Tax Credit

Answer 24

A direct reduction in the amount of tax owed to the government. Tax credits lower the actual tax liability.

Question 25

Tax Liability

Answer 25

The total amount of tax an individual or entity is legally required to pay within a given period.

Question 26

Family Taxation

Answer 26

The taxation of a family unit instead of the individual. The income of the respective people is added up and then taxed as a whole, usually with a lower rate than for individuals.

Question 27

Loss

Answer 27

A financial shortfall that occurs when expenses exceeded income or revenue (e.g. due to investment).

Question 28

Loss Carryover

Answer 28

Allows individuals/businesses to apply a net loss to past or future tax years to reduce taxable income.

Question 29

Employment

Answer 29

A work arrangement where an individual performs services under an employer's control under contract in exchange for compensation.

Question 30

Self-Employment

Answer 30

A work arrangement in which an individual operates their own business, trade, or profession rather than being employed by someone.

Question 31

Business

Answer 31

An organized economic activity involving the production, sale, or exchange of goods or services for profit. Its main intention is therefore to generate profit.

Question 32

PAYE (Pay-As-You-Earn)

Answer 32

A tax system where income tax is deducted from wages or salaries before payment is made to the employee before employees receive their pay, hence on a monthly basis.

Question 33

Financing

Answer 33

The process of obtaining funds to support business activities, investments, or expenditures through debt, equity, or other financial instruments.

Question 34

Equity Financing

Answer 34

A form of financing where investors provide capital in exchange for ownership shares and potential dividends, without an obligation of repayment.

Question 35

Debt Financing

Answer 35

A financing method where a company borrows money with a legal obligation to repay the principal amount along with interest.

Question 36

Economic Double Taxation

Answer 36

Arises when profits are subject to taxation twice, first at the corporate level through CIT, and subsequently when distributed to shareholders as income through PIT.

Question 37

Dividend

Answer 37

A distribution of company's earnings to its shareholders, typically in cash or additional shares, as a return on investment.

Question 38

Interest

Answer 38

The cost of borrowing money, usually expressed as a percentage of the principal, paid by the borrower to the lender over time.

Question 39

Tax Accounting and Timing

Answer 39

Cash: Income is recognized when received, expenses when paid. Accrual: Income is recognized when earned, and expenses when incurred.