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Tax and the Economy: How is your Business being affected?

15th Jun 2015
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Recently, an incisive and forthright Q&A session international taxation expert Axel von Schubert has set out his views on what he believes is a damaging global trend in government approach to tax legislation in leading economic markets.

With more than two decades of experience in international taxation and finance management, as a partner and director of firms such as Euro-Caribbean Management Services Ltd and JP Capital Investments Ltd, Von Schubert explained where he thinks government legislators in many leading economies are going wrong.

This is something that your business would do well to learn from going forward, especially in relation to the following points: -

Tax laws are being overhauled in many countries, what impact is this having and what is the overall trend of the new legislation?

“We are witnessing a rapid and dramatic change in tax legislations globally. The general lack of economic growth in most countries, coupled with varying degrees of incompetence and corruption in many governments results in steadily declining public and private wealth levels.”

“Exploding public debt is now becoming largely unserviceable, as is the case with Greece, and countries are relying on cheap government financing to pay their bills and services, dangerously inflating their country’s debt. Easy targets are the nation’s taxpayers and particularly the wealthy who are being burdened by increasing taxation, often in a desperate attempt to fix their country’s moribund finances. France is a typical example.”

“A shrinking middle class, soaring unemployment and rising poverty levels are the result and this creates a dangerous shift in social structures. The rich, who are by nature a very footloose bunch, transfer their assets, income and personal residences to offshore tax havens, thereby further depriving starved countries of important sources of revenues and growth, as only wealthy entrepreneurs will create economic growth in a favorable economical, political and fiscal climate.”

What can your Business Learn? There are two key points to learn from this. The first relates to understanding, as small and independent business owners must strive to comprehend their precise requirements in line national legislation. Your company must also understand is requirements in relation to its infrastructure, as sole traders face different guidelines to limited companies. The second point revolves around the challenges facing your targeted consumers, as aggressive taxation impacts negatively on disposable income levels and may force you to regulate your pricing.

What are the longer term consequences of the immediate impact of current tax legislation overhauls likely to be?

“The middle classes are being crushed by excessive taxes - again look at France - and there is an obvious exodus and brain drain, leading to further declines. The level of the population living in poverty and unemployment continues to increase, for example, creating a dangerous ‘circulus viciosus’. We are experiencing this currently in most western countries and many countries in Asia are facing the danger of a similar deadly spiral in the future, particularly in countries where current growth rates are stalling.”

“Higher taxes, the creation of new punitive taxes largely aimed at the rich and instigating a ‘witch hunt’ to go after the wealthy is a common and deplorable last resort of many incompetent governments to fill their coffers. The recent attempt at criminalizing perfectly legal tax avoidance measures by privates and corporates under hypocritical pretexts of moral and ethical standards and equating those to tax evasion is absurd and demonstrates the general level of government desperation. Indeed, governments unable to create growth will always invent new draconic tax legislations, which is a deadly downwards spiral.”

What can your Business Learn? In instances where the levels of economic growth remain stagnant, there is always a temptation for government officials to artificially manipulate interest rates and initiate tax hikes. Some governments may also look to aggressively target those who look to actively minimalize the amount of tax that they pay and this is certainly the approach taken by the Conservatives in the UK. Your business will therefore need to be proactive and transparent when repaying taxes, ensuring that complies with new and more aggressive legislation.

How can companies and investors prepare for or react to these changes to tax legislation?

“The key is foresight. It is a well-known fact that all governments constantly seek measures to tighten the noose around the necks of corporates and privates. Clever tax structures cross border tax planning, shifting personal residence and business activities to jurisdictions with more acceptable tax levels, or offshore center’s, or even taking up second citizenships, will give excellent protection.”

A Final Thought: So long as your business is proactive and perceptive, it can create a viable infrastructure that can be adapted to suit changing legislation. Capitalizing on offshore tax breaks is certainly a viable measure, although small businesses may find it easier to simply develop a deeper understanding of their requirements and use this to minimize repayments. With this in mind, the balance between frugality and compliance may be easier than ever to achieve.

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