Tax Law(public law)

What is Tax Law?

1. Taxes are compulsory,unrequited(without receiving anything specific directly
in return
) payments to the government.
Non tax revenue-due when an individual requires a specific service or a good offered
by the government as consideration.(social insurance,passport fees,service
fees,highway tolls(taxe de autostrada))- roughly proportional to the cost :to the
government of providing the services or goods.

substantive tax law:lays down the criteria of taxation, who is taxed, for what, for
how much, where, and when
procedural tax law:regulates formalities on how the tax liability is assessed and
collected, defines taxpayer rights and obligations, and states
provisions concerning the powers of the judiciary for settling disputes between the
taxpayer and the tax administration.
2. Limitations to the Taxing Power:
*normally granted to the government by the constitution(principle of legality and
equality)
*may be enacted by the central government as well as by regional and local
governments
*applies not only to unitary and federal States but also to supranational organisations
such as EU
In the United States the federal government enacts laws on income taxes but not on
goods and services unlike in the EU. Income taxes in the EU remain a reserved
competence of the Member States.The Member States transfer a part of their
national tax revenue to the EU budget.
3. Legality -only the law may impose tax obligations(requires a legislative act).
Taxation is also necessary for the government to be able to maintain a justice
system to protect property rights.
4. Equality -prohibits arbitrary taxation devoid of reasonable foundation,the
legislature enjoys a wide margin of assessing whether and to what extent
differences in situations justify a different tax treatment.
5. Balance of powers:
* the legislative branch decides on the existence and the design of tax laws
delegates competence to the executive to issue interpretative decrees(decrete
interpretative) and implement regulations for tax laws in some countries;
* the executive branch carries out their enforcement.
* the judiciary settles disputes between the tax administration and taxpayer.
The bypassing of parliament is necessary to allow the government to respond
quickly to economic changes and taxpayer behaviour
Goals of taxation:( revenue,redistribution,regulation)
The main goal of taxation is to raise revenue to finance government
expenditures(cheltuieli).Redistribution of wealth and regulation of behaviour
are generally considered secondary goals but may be primary for specific
taxes.The government must always make a trade-off(compromis) between
them.
*“Small government” political view (libertarian view)-low tax revenue and little
regulation through the tax system
*Egalitarian outcomes and solidarity political view(social democratic
view)-support using the tax system for redistribution of wealth

1. Revenue(venituri)- raising revenue through taxation means that persons

need to transfer some of their income to the State,which reduces
welfare.High taxes have a negative impact on economic growth,further
increase in taxes leads to greater loss of revenue due to taxpayers
deciding for tax avoidance and tax evasion.
*Behavioral responses:Taxation has effects on the basic economic
choices between work and leisure and between consumption and
saving.
*”Deadweight Loss”-negative impacts on welfare in addition to the cost
of the tax.A neutral tax system is efficient because it raises revenue
while minimizing the deadweight loss,ensures that persons make
decisions based on their economic merits and not because of their tax
consequences.Redistribution and regulation demand taxation to be
however non-neutral.Some decisions become more economically
favorable due to their tax benefits, whereas other decisions become
less favorable in comparison after discounting their tax
consequences.(?)
Excises (accize) on cigarettes moderate the likelihood that people start
and maintain these bad habits. -regulation of behaviour

2. Redistribution - progressive/regressive ( the extent to which the tax

system should redistribute income and wealth between rich and poor)
Very unequal distribution of wealth may cause social and economic
instability-Thomas Piketty therefore advocates a progressive tax system
that takes more from wealthier persons.

1) *Progressive taxation- differential taxation which timpose higher

taxes on more advantaged persons and no or lower taxes on less
advantaged persons.Results in equal income and wealth positions.
 *Regressive taxation- the average tax rate decreases with higher
income. Results in higher inequality between taxpayers
*Proportional Taxation-tax liability is equal regardless of the size of
income
2)Incidence:(on whom the tax burden ultimately falls)
Statutory bearer of the tax-the person who is legally responsible to pay the
tax.Economic incidence- the way in which a person’s welfare is affected by
taxes
3)Direct Taxes -when legal and economic incidence coincide for the same
person.
Indirect Taxes-when legal and economic incidence likely falls on different
people.
*VAT- value added tax(indirect tax)

3. Regulation
The government may steer peoples’ behavior to choices that stabilize
the general economy and foster growth,regulate socially desirable and
undesirable behaviour.

The Tax Mix(on income/on goods and services/on property)

1. Income taxes(personal taxes/ad personam taxes)

*consider the personal and family circumstances
*Definition of Income:
-accretion concept- the sum of the market value of all consumption and the
change in the value of property rights over the year.(the net accumulation of
the taxpayer's wealth over the year);considers all economic gains
-source concept-the market value of all gains from specific and stable sources
of income;gains that do not have a source are not considered income(lottery
winnings) or hobby activities and family transactions.
*Subjective Tax Liability:(who)
The unit subjectively liable to pay tax may be one or more persons.
Tax unit- 1)income taxes are assessed individually without regard to the family
circumstances
2)income taxes are assessed with regard to the total sum of income
of the family
3)hybrid system: income taxes are assessed individually and
considering the income of other family members
*Objective Tax Liability(when and what)
1) Timing :realization principle-income becomes taxable only when it is
realized(when property has been sold,funds have been made available
etc.)When the timing of taxation of realized income is deferred->the law grants
a “deferral”(amanare)
2)Taxability: Realized and taxable income may be exempted from tax(apply to
income that is principally taxable according to the concept of income)
(?)3)Reductions:Allowances and deductions reduce the amount of taxable
income
Allowances-statutory amounts that reduce taxable income,keeps a minimum
subsistence amount of income free of tax(child allowances)
Professional deductions-expenses that a taxpayer has incurred(suportat)
while carrying out income earning activities;reduce taxable income
Personal Deductions-recognized deductions for personal expenses-charitable
gifts,chronic medical conditions,alimony payments(pensie alimentara)
Limitations to deductibility-mixed expenses that are made in course of a
business that relate to the personal situation or might carry an advantage for
the taxpayer are limited in deductibility.(bribes,penalties and fines are
nondeductible)
*Tax Rates and Credits (how much)
1) Tax rates apply to the taxable income(many States apply a progressive
schedule of rates)
Average rate- total taxes divided by total taxable income
Marginal rate-tax rate that applies to an additional euro of taxable
income(influence behavioral responses-higher marginal tax rates decrease
the incentive to earn additional income
Global System- applies tax rates to the sum of all items of
income(wages/profits/private investment income)
Schedular System-makes distinction between the applicable rates for different
items of income
(?)Flat Tax System-(single proportional tax rate,no or a limited number of
deductions,generous basic allowance)
2) Tax Credits-reduce the amount of taxes due
Refundable Credits-the taxpayer may claim a refund for the amount of credit
that reduces tax liability beyond zero.
(?)The progressivity analysis of income reductions and tax credits:

Tax credit of 1000 euro Income reduction of 1000 euro

*reduces taxes for everyone *has a tax value that corresponds
to the marginal tax rate of the taxpayer
*Income Taxation of Companies(corporation taxes)
Can be shifted to:
-consumers(through price increases of goods)
-shareholders(lower rates of return,lower dividends and interest)
-employees(decreased wages)
-management(decreased compensation)

2. Taxes on Goods and Services

-general transaction taxes(e.g VAT and sales taxes)
-taxes on specific goods and services( excises on cigarettes and alcohol)
-taxes on the use of goods(motor vehicle registration taxes)

Basic Features of VAT:

-does not apply to transactions between persons acting in private capacity
-total VAT is collected in portions that correspond to the tax due on the
economic value added of each stage in production and distribution process of
goods and services
-some transactions with difficulties in assessing the tax in respect of some
sectors(financial services) or a result of regulatory aims( providing basic
access to health care) are exempted from VAT.Taxation of foodstuffs and
books applies to lower taxation.
The minimum statutory standard VAT rate in the EU is 15% but almost all
Member States apply statutory standard rates of 20% or higher.

VAT input/VAT output(?)pg 267

3.Taxes on Property
1. Taxes on Property Ownership: (product of a tax rate and the value of
the property)
net wealth tax-the tax that includes all assets and debts of a taxpayer

2. Property Transaction Taxes:(include all estate,inheritance and gift taxes

when property ownership changes from one person to another)
These taxes prevent the accumulation and concentration of wealth in
the hands of a small proportion of taxpayers over generations.
An estate tax is levied on the value of the property of the deceased.any States
also tax gratuitous transfers inter vivos(between the living) with a gift tax to
avoid the avoidance of the estate and inheritance taxes by transferring
ownership before death.(low taxes on first-degree relatives)
4.Tax Procedure
*Taxpayer Rights and Obligations
Defining the proper rules of conduct between tax authority and taxpayers the
principles of administrative law are important: tax authority’s actions should be
impartial and proportionate
*Assessment and Collection
Assessment Procedure( by the tax authority/self-assessment by the taxpayer):
file a tax return which includes necessary information to establish tax liability
Assessment by tax authority: This system is used in many States for taxes on
income.The tax authority uses the information from tax return filed by the
taxpayer combined with property registers,banks and other financial
institutions to determine the tax liability.The taxpayer receives a tax
assessment and should remit then the taxes owed to the tax authority.
Withholding taxes:a tax that a third party withholds on behalf of the
taxpayer(payments of wages,dividends etc)
Penalties are applied if a taxpayer does not comply with taxpayer
obligations(these have both deterrent and punitive function).Imposed for:
omission or late filing of returns and forms,inaccurate filing of returns and
forms,refusal to disclose information ,omission or late payment of taxes.
Criminal Sanctions:The main example of a tax crime is tax evasion or tax
fraud.
*Tax Management-Bending the tax law to one’s advantage
tax management principle:it is legitimate and lawful to arrange one’s affairs as
to keep taxes as low as possible
Tax planning-the lawful use of options provided by the law
Tax avoidanceTax avoidance may be viewed as unethical, but it is not
unlawful. However, most States draw the line here and generally respond by
closing the legal loophole for the future with additional regulation and specific
anti-avoidance rules
Tax Evasion-involves illegal conduct(intentionally non reporting of income
,fabrication of invoices by unlawfully claiming or overstating deductions of
expenses that have not been made in fact)