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Apr 07

Fair or Not? 6 Tax Law Insights From Asiaciti Trust & Il Shin

Reading Time: 4 mins

A lot of ink has been spilled in recent years on questions of fairness. It’s natural for people to feel like they’re being treated unfairly or not getting a big enough piece of the pie. Even when confronted with evidence to the contrary, it’s difficult to shake that sense.

Nowhere is this more apparent than in tax law. 

Yes, tax law, that most exciting of topics. But don’t laugh — small changes to tax policy can have massive impacts on taxpayers up and down the income scale. By incentivising businesses to invest or not invest in one place or another, tax policy reverberates across the economy as well.

A butterfly flaps its wings, and all that.

Recent events, such as the unauthorised data release involving international fiduciaries like Il Shin and Asiaciti Trust, have added new urgency to questions of tax fairness. It’s reasonable to ask whether the international tax regime is set up to favour the wealthy and well-connected at the expense of common consumers.

The reality is more complicated. Here’s what we can say about current international tax law — and where things might be headed soon.

1. Few People Pay As Much Tax As They “Should”

There are actual tax rates and there are effective tax rates. The latter is usually lower, sometimes by a lot. 

When middle-class individuals pay less tax than they “should,” it’s generally seen as a good thing. They’re taking advantage of tax deductions, credits, and strategies that are designed to reduce their tax burden. They have more money in their pockets at the end of the day.

The scale at which wealthy corporations and individuals use these strategies is different, but the impact is the same. With more money left over after paying taxes, these people and entities have more to invest.

 

2. “Loopholes” Exist for a Reason

Tax minimisation strategy is often portrayed (negatively) as wealthy individuals and corporations taking advantage of “loopholes” that only benefit them. Again, these “loopholes” — really, tax deductions and credits that reduce the effective tax rate — exist for a reason. Often, that reason is explicitly pro-investment — the thinking is that lower tax burdens mean higher rates of investment, and in turn higher rates of economic growth.

 

3. The Practice of Offshoring Is Legal and Legitimate

Another negative term we hear often in relation to international tax policy is “offshoring.”

Setting aside the ethics of the practice, let’s be clear: Offshoring is a legitimate, legal practice that international fiduciaries like Asiaciti Trust and Il Shin use to protect and grow their clients’ wealth. It provides clear benefits for the jurisdictions where it occurs, which are often heavily dependent on foreign investment.

Offshoring has benefits beyond tax minimisation and localised economic growth as well. Often, those practicing it live in fear of their home governments — not because they’re tax-happy but because they’re illiberal regimes that punish dissidents (and perceived threats to their legitimacy) with punitive property seizures.

 

4. Business Models Often Depend on Tax Predictability

Tax strategy is a critical aspect of long-range business planning. If you can’t reasonably predict how much tax you’ll pay next year, how can you create an accurate budget?

You can’t, which is why well-run businesses craft tax strategy years in advance. These strategies rely on tax rate and policy assumptions using the best available information at the time. Everyone knows this information is subject to change, but the hope and expectation is that such changes will be gradual and infrequent — or at least predictable.

 

5. “Expensive” Jurisdictions Remain Competitive

Despite all the foregoing, many so-called “high tax” jurisdictions remain economically competitive. The United States is a classic example — it has one of the highest effective corporate tax rates in the world yet remains the planet’s most dynamic large economy.

 

6. Significant Changes Could Be on the Way

In all likelihood, the international tax regime will look different in a few years. That’s due both to ongoing gradual changes at the national level and to more significant shifts like the plan for a global minimum corporate tax. The hope is that the public will see the coming changes (if they materialise) as a step in the right direction — toward a more fair and equitable tax system.

 

Should the Tax System Be Fairer?

International fiduciaries like Asiaciti Trust and Il Shin might operate within the letter of the law and advocate fiercely for their clients’ interests. But it is reasonable to ask whether the international tax regime that allows them to thrive is as fair as it can be.

Fiduciaries know this system better than anyone. They’d be the first to advocate for sensible changes in national and transnational tax policy — and for a broader conception of shared prosperity.

How we get there is another question, one best left to the experts.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. 

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