Comment by Cthulhu_ | Hacker News Reader

Comment by Cthulhu_ | Hacker News Reader

Parent Full thread

> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies?

I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes.

I could be wrong. I'm just reminded of people like the Google founders who humblebragged about only earning $1 / year in salary. They still became multi-billionaires off of stocks.

In my country, assets are taxed by a percentage of a percentage (they tax estimated return on investment, which is ridiculous if you only have a savings account that nowadays has either no interest or even negative interest). I think there should be an additional tax on any money or assets moving out of said investment account.

Because that's how rich people do it; they hardly pay any taxes because they have hardly any taxable income or assets. They put their house into a corporation or foundation, funnel any cash they need through various shell organizations and tax havens, etc.

Really rich people do this with a complex network of shell organisations that's as opaque as possible.

It's not just that a corporation owns their house, it's that another corporation owns that corporation, and a holding company in the Cayman Islands with a nominee director who lives in a postbox owns everything, except the IP rights which are in Panama - this year. And personal spending goes through a credit card set up by their own personal offshore bank, which effectively makes it loan. Etc.

If there are enough shell companies you can decide your own tax payments, because you can hide everything you choose to hide. It's not that these networks can't be disassembled, it's that they can't be disassembled efficiently. It can literally take months or years of full-time auditing effort to trace all the relationships.

Somewhat oversimplified, you don't need a herd of corporations to do this - simply sell your house to a trust fund of which you or someone you trust is the primary beneficiary. In Jersey, Luxembourg or the like. You pay a lawyer who already does this for many funds to administer yours.

You then either rent the house from the trust for a minimal amount, or the trust lets you stay there rent-free as a guest. This is also how many of the wealthy get around inheritance tax. When you cash in your chips your will appoints your offspring/significant other as the primary beneficiary and the wheel keeps turning.

As with all things in life knowing the thing is often the hard part. Most of us don't know what questions to ask.

I was under the impression that living somewhere rent-free, or renting at under the market rate for a typical location, was still taxable income that needed to be declared.

Not in any country I've lived, but I imagine there'll be inevitable outliers. Rent is rent though, no? I'd love to know which country penalises you for finding a place to live with low rent...

I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes.

This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies in turn would pay them in dividends.

The saving is more from a National Insurance perspective than an income tax one as income tax is paid on dividends (and dividends come out of profit after tax)

Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band.

This is from funds that have already had 19% corporation tax applied to them.

Of course anything paid as dividends doesn't attract either employees or employers National Insurance so there's a saving there, and adding a spouse or partner as a director allows the income and dividends to be split so reducing tax.

Merging National Insurance into Income Tax is one way to start addressing the issue also simplifies administration work (for companies and government) but you'd get the political issue of tax increases on pensioners savings.

Fundamentally we need to start treating earned (salary) and un-earned (interest, dividends) income the same from a tax point of view

From a national insurance POV I think you meant.

For income tax apart from the £2k(divi) and £500 (savings interest) allowances, it is already on the same basis.

Reply on news.ycombinator.com