Prevention of an Entrepreneur's Income Shifting in a Nordic Dual Tax

Jouko Ylä-Liedenpohja
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Jouko Ylä-Liedenpohja: School of Management, University of Tampere

No 762, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: Nordic dual taxes earned income at a progressive rate schedule while income from capital at a proportional rate. In the Finnish system transformation of taxable income from labour to income from capital is prevented by splitting entrepreneurial income to presumptive income from capital, based on net business assets, and by taxing the rest as earned income. The multi-period implication of the split rule is analysed, taking the opportunity return on the net assets into account, and how it blocks income shifting. Capital income dividends from non-listed companies on average are economic income from capital. However, high opportunity wage professionals, whose marginal tax rate on earned income exceeds the double-tax rate on undistributed corporate profits, potentially benefit from using non-listed companies as piggy banks. Their alleged tax planning is critically assessed.

Keywords: dual tax; income shifting; entrepreneur; tax planning (search for similar items in EconPapers)
JEL-codes: H25 H26 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-12
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http://urn.fi/urn:isbn:978-951-44-7204-6 First version, 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0762

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