4 ms·

It’s not as crazy as it initially seems. It’s because of a fundamental difference between how capital gains tax and income tax are collected. Capital gains ar

by derriz 1y ago

It’s not as crazy as it initially seems. It’s because of a fundamental difference between how capital gains tax and income tax are collected. Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation. I’m from a country which has no exit tax on capital gains and notoriously a certain wealthy telecoms magnet - having been resident all his life - moved to Portugal just before realizing billions of capital gain. Thus despite earning multiple billions through businesses activities in his native country, he effectively paid zero tax. I myself have benefited from this lack of capital gain exit tax as I moved to a country with very low capital gains tax. So despite the fact that my modest equity portfolio earned most of its growth while I was living in Ireland, when I sell, the Irish government will get nothing. The problem, it seems to me is the method of valuation for the deemed disposal and/or the fact that it can cause a “liquidity squeeze“ for the tax payer. I don’t see a simple solution - maybe other than getting rid of capital gains taxes completely and collecting more consumption taxes, for example, but I’m sure this would just open up a range of other tax evading loopholes.

dismalaf 1y ago
Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...
- blitzar 1y ago
  You get a credit against future gains. Same as when you sell an asset at a loss, the tax man doesnt pay you tax - your losses are available to offset future losses.
cdeez 1y ago
Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell. Source -> https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/living-overseas-and-remaining-an-australian-tax-resident https://www.ato.gov.au/individuals-and-families/coming-to-au... If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT. You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.
- digianarchist 1y ago
  Canada does this too. Don’t most countries?
  - graemep 1y ago
    I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago. With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly). Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
    - zarzavat 1y ago
      I believe in the UK it works like this: if you leave the country you are not liable for CGT even if you realise gains, unless you return within 5 years then you have to pay tax on any gains you realised while you were away. With some caveats.
- csomar 1y ago
  How will you reconcile with your new jurisdiction though? What if you move to 4-5 countries during that time…
bluecalm 1y ago
Capital gain tax is stupid anyway. It's one of the first tax that should be removed. You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage. You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.
- pydry 1y ago
  It is at least not wildly regressive like consumption taxes are. It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
  - bluecalm 1y ago
    There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates. EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
    - qwertylicious 1y ago
      > There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families Every one of those "solutions" is just a patch on the basic problem that consumption taxes are fundamentally regressive. Go tell someone living paycheque to paycheque that it's okay, you'll get a rebate every quarter for the extra tax they paid, or worse, on their annual tax filing, and tell me how that'll make their household budget actually work. Honestly, when I read ideas like this, I realize just how massive the disconnect is between the lived experiences of the relatively well off and the working poor...
mytailorisrich 1y ago
Capital gain is the profit made on the sale of a capital asset. There is no gain or loss until the asset is sold. Taxation is not deferred, it applies when the gain is made, i.e. upon sale.
- Wobbles42 1y ago
  This needs to be repeated more often. If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax? That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality. Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right? You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
  - carlosjobim 1y ago
    > did I just magically make $900k? Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
    - Wobbles42 1y ago
      That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains. I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.
tdullien 1y ago
The obvious solution is for the state to accept illiquid securities as payment for tax.
- Wobbles42 1y ago
  This would be hilarious. I would support that change for entertainment value alone.
rusk 1y ago
> a certain wealthy telecoms magnet It’s okay to name him here you know. [redacted] can’t get you on HN
tebbers 1y ago
What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?
- dandellion 1y ago
  I mean, other than give access the infrastructure, the people and the rule of law... what did the romans ever do for us?
- _petronius 1y ago
  If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth. Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you. If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes. If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
  - robocat 1y ago
    > benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax). If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services??? The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems. Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.
cess11 1y ago
Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.
phyzix5761 1y ago
Did the telecom business have profits? Were those taxed?

by derriz 1y ago

dismalaf 1y ago

Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...

blitzar 1y ago
You get a credit against future gains. Same as when you sell an asset at a loss, the tax man doesnt pay you tax - your losses are available to offset future losses.

cdeez 1y ago

Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell. Source -> https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/living-overseas-and-remaining-an-australian-tax-resident https://www.ato.gov.au/individuals-and-families/coming-to-au... If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT. You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.

digianarchist 1y ago
Canada does this too. Don’t most countries?
- graemep 1y ago
  I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago. With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly). Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
  - zarzavat 1y ago
    I believe in the UK it works like this: if you leave the country you are not liable for CGT even if you realise gains, unless you return within 5 years then you have to pay tax on any gains you realised while you were away. With some caveats.
csomar 1y ago
How will you reconcile with your new jurisdiction though? What if you move to 4-5 countries during that time…

bluecalm 1y ago

Capital gain tax is stupid anyway. It's one of the first tax that should be removed. You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage. You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.

pydry 1y ago
It is at least not wildly regressive like consumption taxes are. It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
- bluecalm 1y ago
  There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates. EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
  - qwertylicious 1y ago
    > There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families Every one of those "solutions" is just a patch on the basic problem that consumption taxes are fundamentally regressive. Go tell someone living paycheque to paycheque that it's okay, you'll get a rebate every quarter for the extra tax they paid, or worse, on their annual tax filing, and tell me how that'll make their household budget actually work. Honestly, when I read ideas like this, I realize just how massive the disconnect is between the lived experiences of the relatively well off and the working poor...

mytailorisrich 1y ago

Capital gain is the profit made on the sale of a capital asset. There is no gain or loss until the asset is sold. Taxation is not deferred, it applies when the gain is made, i.e. upon sale.

Wobbles42 1y ago
This needs to be repeated more often. If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax? That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality. Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right? You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
- carlosjobim 1y ago
  > did I just magically make $900k? Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
  - Wobbles42 1y ago
    That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains. I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.

tdullien 1y ago

The obvious solution is for the state to accept illiquid securities as payment for tax.

Wobbles42 1y ago
This would be hilarious. I would support that change for entertainment value alone.

rusk 1y ago

> a certain wealthy telecoms magnet It’s okay to name him here you know. [redacted] can’t get you on HN

tebbers 1y ago

What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?

dandellion 1y ago
I mean, other than give access the infrastructure, the people and the rule of law... what did the romans ever do for us?
_petronius 1y ago
If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth. Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you. If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes. If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
- robocat 1y ago
  > benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax). If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services??? The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems. Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.

cess11 1y ago

Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.

phyzix5761 1y ago

Did the telecom business have profits? Were those taxed?