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Comment by bryanlarsen | Hacker News Reader

> This creates a perverse scenario where business owners must extract dividends or sell shares every year just to cover their tax bill. With dividend and capital gains taxes at around 38%, you need to withdraw approximately 1.6 million NOK to pay a 1 million NOK wealth tax bill.

Why wouldn't you just take a loan against the assets? A few percent of interest is a lot cheaper than 38%. In Canada you used to have to pay taxes on unrealized option gains, standard procedure was to take a loan to pay taxes. If the options gains disappeared, you'd use your next years tax refund to pay back the loan.

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If they took a loan then they would have to stay and waste this perfectly good excuse to do what they wanted to do anyway.

> A few percent of interest is a lot cheaper than 38%

Not sure why that is comparable.

Let's say you have a tax debt of 1m, and your choice is to take out a 1m net dividend. Now you have to pay dividend tax.

The other alternative is to borrow 1m, and pay interest on a 1m loan.

Unless you hold the loan long enough for the aggregate interest accrued until you're able to sell some shares exceeds the dividend tax, it's a net saving.

Ah, ok. But how many illiquid companies pay out dividends though?

The real alternative is to not tax illiquid wealth.

> Ah, ok. But how many illiquid companies pay out dividends though?

Ones whose founders have protected themselves against a significant wealth tax bill by ensuring investment agreements etc. protect their ability to. It's not rocket science to make this work if you worry about it.

> The real alternative is to not tax illiquid wealth.

Why? Taxing illiquid wealth has worked just fine in Norway for decades.

And how would they pay back a loan?

Standard practice in America is to not pay them back, to hold the loan until death. The estate pays off the loan.

If their business grows at a rate higher than interest, there's no reason why the bank wouldn't be happy to add the interest to the loan. If their business is growing at a rate lower than interest, it's a poor investment and they ought to sell it off and put their money somewhere else. Such as lending it out.

This is just delaying the payment. OK, let's assume they do it for 1,2,3 years and that the bank is happy not to receive any payment in those 3 years. Now they've accrued interest-on-interest and the more time passes the more they'd have to pay back. So my question remains - one day they'd have to pay it back and on that day they'd have to sell assets and pay 36% tax.

> sell if off

To who? How?

If you can't find a buyer, then close it down and sell the assets. The point being that if your business isn't capable of raising capital equivalent to 1% of its taxable value, then this generally isn't a reasonable business.

The valuation for tax purposes of unlisted companies is the taxable valuation of the company assets excluding goodwill [1]. In practice this usually means the taxable value of e.g. a startup tends to be quite low.

[1] https://www.skatteetaten.no/rettskilder/type/handboker/skatt...

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