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

Author

Listed:
  • Jouko Ylä-Liedenpohja

    (School of Management, University of Tampere)

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.

Suggested Citation

  • Jouko Ylä-Liedenpohja, 2007. "Prevention of an Entrepreneur's Income Shifting in a Nordic Dual Tax," Working Papers 0762, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0762
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    File URL: http://urn.fi/urn:isbn:978-951-44-7204-6
    File Function: First version, 2007
    Download Restriction: no
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    More about this item

    Keywords

    dual tax; income shifting; entrepreneur; tax planning;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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