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In an effort to address economic inequality, the Biden Administration has put forth bold proposals aiming to tax the wealthiest Americans more effectively.
Highlighted in President Biden’s State of the Union Address, these proposals include a minimum tax on the ultra-wealthy, specifically targeting those with assets over $100 million.
This initiative forms part of a broader strategy to generate over $4.5 trillion in new taxes over the next decade, with a significant portion coming from corporations.
The new tax proposals mark a significant shift in how wealth is taxed in the United States.
For the first time, a 25% tax could be imposed not only on annual income but also on the increase in the value of holdings, such as stocks and real estate.
This approach aims to capture the unrealized gains of the ultra-wealthy, a wealth source traditionally elusive to the IRS.
Despite the innovative nature of these proposals, many tax experts (this one included!) express skepticism regarding their enforceability.
Concerns revolve around the IRS’s ability to accurately assess the net worth and complex assets of the ultra-wealthy.
Additionally, the volatility of assets like stocks raises questions about the stability of this revenue source.
Critics argue that simpler changes to the tax code could achieve similar goals without the complexities of estimating unrealised gains.
The Biden Administration’s proposals resonate with global trends toward more equitable taxation.
Following a historic agreement on a minimum tax rate for multinational corporations, international finance ministers have begun discussions on a minimum personal tax for the world’s billionaires.
This reflects a growing consensus on the need for tax systems that more effectively target the wealth of the ultra-rich.
Efforts to increase taxation on the wealthy are not new.
Past administrations, including Obama’s, have sought to implement measures like the “Buffett rule” without success.
Today, despite strong Democratic support for taxing the ultra-wealthy, opposition from Republicans and some centrist Democrats remains a significant barrier.
The ongoing debate reflects a broader conversation about economic equity and the role of taxation in achieving it.
As these tax proposals move through the legislative process, they promise to ignite vigorous debates on fairness, economic policy, and the future of taxation in America.
While the path to implementation may be fraught with challenges, the Biden Administration’s initiative underscores a commitment to addressing wealth inequality and ensuring that all Americans contribute their fair share to the nation’s fiscal health.
Whether these proposals are remotely workable, is a different matter.
If you have any queries about this article Biden Seeks New Taxes on the Ultra-Wealthy or US tax matters in general, then please get in touch.
Starting in 2024, France’s real estate wealth tax legislation introduces a significant change concerning the deductibility of certain debts.
This alteration ensures that debts incurred by entities unrelated to a taxable asset are excluded from the wealth tax assessment.
The Finance Law for 2024 has refined Article 973 of the French tax code, thereby affecting the valuation of shares for wealth tax calculations.
Under the new law, debts “not related to a taxable asset” by a company cannot influence the wealth tax.
This shift brings the rules for indirect debts, via companies, in line with those already set for direct taxpayer debts.
Prior to this update, there were no specific restrictions on the types of company debts that could be factored into the wealth tax calculation.
It meant that even debts for non-taxable assets, like movable or financial holdings, could be deducted.
However, starting with the 2024 tax year, the law will align the treatment of all debts, ensuring a consistent approach whether the debt is direct or through a company’s liabilities.
The FTC doesn’t explicitly define what constitutes a debt “relating to a taxable asset.”
Hence, guidance may be sought from Article 974, which outlines several deductible debt categories, including those for acquisition, maintenance, improvement, or associated taxes of real estate assets.
There’s an interesting twist in the amendment: the valuation cap.
The law states that the taxable share value after considering deductible debts should not exceed the market value of the shares or the market value of the company’s taxable real estate, less related debts – whichever is lesser.
This clause requires careful interpretation to safeguard taxpayers from undue taxation.
Nonetheless, this cap will not impact the enforcement of other deductibility limits, like those on shareholder loans.
In light of these changes, it’s crucial for taxpayers to diligently track the purpose of corporate debts to affirm their connection to taxable assets. Clear accounting practices and well-documented loan agreements outlining the use of funds are now more important than ever to ensure compliance and avoid potential overtaxation.
With the scope of wealth tax evolving, sensible planning and administration are key to navigating these changes effectively.
If you have any queries about this article on French Real Estate Wealth tax and the 2024 changes, or French tax matters more generally, then please get in touch.
Norway has seen a rise in the number of its billionaires leaving the country, in response to increased taxes.
The Norwegian government has implemented stricter rules for taxing its citizens, including the abolition of the five-year period for exit taxation of unrealized gains on shares and other assets.
This means that any gains on assets such as shares will be taxed immediately upon transfer or sale, rather than being taxed over a five-year period.
Additionally, the rules will be extended to include transfers of shares to close family members living abroad.
As a result, many of Norway’s wealthiest individuals, whose net worth exceeds 1 billion Norwegian kroner (approximately 100 million euros), have reportedly relocated to countries such as Switzerland.
One of the main reasons for this trend is the significant difference in tax rates between Norway and other countries.
According to an analysis by the Heritage Foundation, the top tax rate in Norway is 47.8%, while the country’s total tax burden is 39.9% of total domestic income.
In comparison, Switzerland has a top income tax rate of only between approx. 25% to 40%, and its total tax burden is 28.8% of total domestic income.
Moreover, corporate profits are taxed at 28% in Norway, and dividends are taxed again at 28% income tax rate, leading to a de facto tax of 48.16% on company profits.
In contrast, Switzerland has lower profit taxes (between approx. 12% and 20%), lower income taxes (dividend privilege; between approx. 13% and 30%), lower wealth tax (0.1% to just under 1%), and certain cantons have regulations defining the maximum tax burden to prevent confiscatory taxation in special cases (especially in the case of large non-income-producing assets).
The Swiss tax system is generally considered advantageous for high-net-worth individuals compared to other countries for several reasons.
First, Switzerland’s federal, cantonal, and municipal tax system allows for relatively low tax rates, especially for high-income earners.
In addition, Switzerland has favorable tax treatment for certain types of income, such as dividends and capital gains.
Dividends from significant shareholdings (10% or more) held as part of an individual’s private assets are subject to preferential taxation.
Capital gains from the sale of private assets are generally tax-free, with an exception on capital gains on Swiss real estate, which are taxed under a special regime.
The Swiss tax system is also decentralized, with each canton having the power to set its own tax rates, leading to a high degree of tax competition between the cantons. This can result in lower overall tax rates for individuals and companies.
Additionally, Switzerland has strict banking secrecy laws that provide wealthy individuals with a high degree of privacy and discretion in their financial affairs, and an extensive network of double taxation treaties that help avoid or significantly reduce double taxation and foreign withholding taxes on dividends.
Switzerland is also known for its high standard of living, excellent infrastructure, and high-quality health and education systems, making it an attractive location for wealthy individuals seeking a stable and prosperous environment.
In conclusion, the increase in taxes in Norway has led to a rise in the number of billionaires leaving the country.
Switzerland has become a popular destination due to its advantageous tax system, which allows for relatively low tax rates, tax competition between cantons, strict banking secrecy laws, an extensive network of double taxation treaties, and a stable and prosperous environment.
If you have any queries about this article on Norway’s Wealth Tax Exodus, or Norwegian tax matters in general, then please get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Several weeks ago, we commented on the Spanish Government’s recently proposal to introduce a Solidarity Wealth Tax.
However, this article considers new wealth tax proposals – in respect of the Net Wealth Tax and the Solidarity Wealth Tax – for non-Spanish-tax-resident individuals who hold Spanish real estate through one or multiple non-Spanish-resident entities.
It is envisaged that non-Spanish-tax-resident individuals would be subject to the Net Wealth Tax (“NWT”) when they hold shares in an unlisted entity. This would be where “at least 50% of its assets are directly or indirectly made up of real estate located in Spain”.
These new proposals would replace the current domestic provisions which historically have required non-resident individuals to pay NWT in circumstances where they directly own real estate only.
Additionally, the Spanish Government plans to bring in the Solidarity Tax (“ST”) to supplement the regional NWT. The ST will be calculated and assessed at the federal level.
The ST will be levied on non-Spanish-tax-resident individuals with a net wealth in Spain of at least EUR 3 million. It should be noted that this will include any interests in non-resident entities that own Spanish real estate
The NWT can be credited against any ST liability.
It is expected that these measures will be passed before the end of 2022.
If the new legislation is published prior to the end of 2022, then both would apply to indirect holdings of Spanish real estate held on 31 December 2022.
It is currently expected that both would have to be paid in June or July of the following year.
If you have any queries about the Spanish Net Wealth Tax or Solidarity Wealth Tax, or Spanish tax matters in general, then please do get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.