helene_t, on Jul 23 2007, 04:30 AM, said:
Gerben42, on Jul 23 2007, 11:06 AM, said:
Quote
He set up a cyclical chain of fictive companies with different fiscal years. By transferring deductable liabilities between the companies at well-chosen dates he could reduce his tax bill to litter ally zero. One of his business partners had to sue him to get out of his "tax circus". He ended up spending two years in prison after a very controversial lawsuit.
Of course this should not work but if it did, what law did he break?
There is some vague Danish law that outlaws financial constructions the only purpose of which is to generate tax deductions. I don't think it has ever happened (except in the case mentioned) that someone was sent to jail for violating that law. It's quite common that people fill in non-deductable items in the "deductable" fields on the tax form. If you volunteer the complete documentation of the item, thereby enabling the authorities to verify the deduction, you're probably not a criminal and they will just modify your form and tax you accordingly. There are gray-area cases, for example if you just specify "home-work transportation expenses" without volunteering complete details, and when the authorities ask for details it turns out to be transportation from a temporary resort that doesn't count as "home", but even then they probably won't fine you and certainly not put you to jail.
Maybe the judges found that Glistrup, being a tax lawyer, must have known that the deductables were in fact not deductable because they were fictive transaction and/or because they served a tax evasion purpose only.
Personally I think that the fact that he gave full disclosure (going public with a message like "look how silly the system is, I earn millions and don't pay any taxes while people on minimum wages pay some 50% of their income" ) should have been considered a mildening circumstance, if anything. The tax circus had been running for years, everyone knew exactly what was going on, and the local tax authorities just said that there was nothing they could do about it. But what do I know about law.
Sort of very common in many countries but I would rephrase.
In America business tax deductions are only deductible if they served some business purpose which is trying to make a real profit. Note the words trying to make a real profit.
If you are not trying to make a real profit but you do not deduct, no problem, no law broken.
IF you are not trying to make a real profit, and you deduct, that is tax fraud.
What does "trying to make a real profit" mean?
Well if you make a profit in proportion to tax write offs no problem.
If not expect to have to prove you were in tax court that knows all the tricks and more compared to you, which is almost impossible.
Yes the tax laws are vague and vague, not in your favor but the governments.
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