Confused by tax terms and lingo? We prepared a list of most used tax terms by which we would like you to gain better awareness of tax terminology. The glossary of terms is our translation of over 190 common tax and economic/business terms.
Explanations on following tax terms are very condensed and may not be complete. The aim of this publishment is to bring their meaning to tax non-professionals, ASB Group therefore doesn´t take any responsibility for their subsequent use for any purpose by any reader.
ACCOUNTING BASIS - Method of calculating amounts subject to income tax and VAT. In respect of VAT, tax would be computed as a percentage levy on the excess of sales over purchases. This is a theoretical concept and no country uses it.
ACCOUNTING PERIOD - A period of time used by taxpayer for the determination of tax liability
ACCOUNTS PAYABLE - A list of the debts currently owed by a person or business, mainly for the purchase of services, inventory, and supplies
ACCOUNTS RECEIVABLE - A list of the money owed on current account to a creditor, which is kept in the normal course of the creditor's business and represents unsettled claims and transactions
ACCOUNTING RECORDS - All documents and books used in the preparation of the tax return and all financial statements, including general ledger, subsidiary ledgers, sales slips, and invoices.
AFFILIATION PRIVILEGE - Tax relief or exemption accorded to dividend distributions made by a resident subsidiary company to its parent company which owns a certain minimum percentage of shares, in order to mitigate double taxation of such dividends.
ALLOWANCE - Deduction or exemptions generally made in computing income taxes, inheritance and gift taxes and some forms of sales taxes.
AMORTIZATION - Process of writing off the cost of an intangible asset over its useful life.
AUXILIARY COMPANY - Company which is part of a group of companies and which supplies auxiliary services to group companies.
AVOIDANCE - A term that is difficult to define but which is generally used to describe the arrangement of a taxpayer's affairs that is intended to reduce his tax liability and that although the arrangement could be strictly legal it is usually in contradiction with the intent of the law it purports to follow. Cf. evasion
BACK-TO-BACK LOAN - Method of borrowing between related parties where a loan is channelled through an independent third-party intermediary.
BALANCE SHEET - Statement of the financial position of a business as of a particular date. The statement will show the business's assets in one column and its liabilities and owner's equity in another column.
BENEFICIAL OWNER - A person who enjoys the real benefits of ownership, even though the title to the property is in another name. Often important in tax treaties, as a resident of a tax treaty partner may be denied the benefits of certain reduced withholding tax rates if the beneficial owner of the dividends etc is resident of a third country.
BRANCH - Division, office or other unit of business located at a different location from the main office or headquarters. It is not a separate legal entity.
BRANCH TAX - Tax imposed on branches of foreign companies in addition to the normal corporate income tax on the branch's income. This is equivalent to the tax on dividends which would be due if the branch had been a subsidiary (see: subsidiary company) of the foreign company and had distributed its profit as dividends.
CAPITAL ASSETS - All property held for investment by a taxpayer.
CAPITAL GAIN - A gain on the sale of capital asset.
CAPITAL TAX - A tax based on capital holdings, as opposed to a capital gains tax.
CAPITALIZE - To record capital outlays as additions to asset accounts, not as expenses.
CAPITAL LOSS - The loss from the sale of a capital asset.
CAPTIVE BANK - Wholly owned subsidiary of a multinational group of companies whose purpose is to provide banking service to the group and those with whom the group deals. A captive bank is generally located in a tax haven in order to avail itself of the low capital requirements and freedom from exchange control.
CARRYOVER - A process by which the deductions or credits of one taxable year that cannot be used to reduce tax liability in that year are applied against a tax liability in subsequent years (carryforward) or previous years (carryback).
COMPENSATION - Direct and indirect monetary and non-monetary rewards to employees.
CONDUIT COMPANY - Company set up in connection with a tax avoidance scheme, whereby income is paid by a company to the conduit and then redistributed by that company to its shareholders as dividends, interest, royalties, etc.
CONSUMPTION TAX - Tax generally intended to fall on the ultimate consumption of goods and services.
CONTROLLLED FOREIGN COMPANIES (CFC) - Companies, usually located in low tax jurisdictions, that are controlled by a resident shareholder. CFC legislation is usually designed to combat the sheltering of profits in companies resident in low- or no-tax jurisdictions. An essential feature of such regimes is that they attribute a proportion of the income sheltered in such companies to the shareholder resident in the country concerned. Generally, only certain types of income fall within the scope of CFC legislation, i.e. passive income such as dividends, interest and royalties.
CORPORATE INCOME TAX - Income tax on the income of companies.
CORPORATION - In technical terms, it means a legal entity generally chartered by a relevant government and separate and distinct from the persons who own it. However it is now commonly used as another way of referring to a company.
COST - Purchase price paid for property or the value of the exchange for which property is given.
CREDIT, WITHHOLDING TAX - Various kinds of income (such as dividends, interest, royalties) are taxed at source by requiring the payer to deduct tax and account for it to the tax authorities (abroad). The taxpayer recipient is entitled to credit the tax withheld at source against his final tax liabilities determined by (domestic) tax law of the country in which he is resident.
DEBT CAPITAL - Funds obtained through various types of loan which normally comprehends debentures and bonds bearing fixed interest.
DEBT/EQUITY RATIO - Relationship of total debt of a company to its ordinary share capital. If a corporate debt is disproportionately high in comparison with its equity, the debt may be recharacterised as equity, resulting in a disallowance of the interest deduction and taxation of the funds as dividends.
DEFAULT - The failure of a debtor to make timely payments of interest and principal amounts as they come due or to meet some other provision of a bond, mortgage, lease, or other contract.
DE MINIMIS - Phrase used in connection with circumstances in which the full rigour of the tax law is not enforced because, in particular, of the small amount or minor breach which may be involved, particularly in the context of under-assessed or underpaid tax which are not pursued on "de minimis" groundS.
DIRECT COST - Cost identified with a particular transaction, such as raw materials, components and goods, wages and other processing expenses.
DIRECT INVESTMENT - Description often given to a substantial investment in the shares of a company.
DIRECT TAX - Direct taxes are taxes imposed on income, capital gains and net worth. Gift tax, death duties and property tax are also considered direct taxes.
DIVIDENDS - A payment by a corporation to shareholders, which is taxable income of shareholders. Most corporations receive no deduction for it.
DOMICILE - A person's domicile in English common law is his permanent home, the place to which he always intends to return. Residence is the place where an individual lives for a certain period of time, while domicile is the place where an individual makes his permanent home.
DOUBLE TAXATION, DOMESTIC AND INTERNATIONAL - Domestic double taxation arises when comparable taxes are imposed within a federal state by sovereign tax jurisdictions of equal rank. International double taxation arises when comparable taxes are imposed in two or more states on the same taxpayer in respect of the same taxable income or capital, e.g. where income is taxable in the source country and in the country of residence of the recipient of such income.
EARNED INCOME - Income or compensation derived from personal services in an employment, trade, business, profession or vocation. (cf. investment income).
EARNINGS BEFORE TAXES - Sales revenue less cost of sales, operating expenses, and interest, before taxes have been paid.
ECO TAX - See: Environmental tax
EMPLOYEE STOCK OPTION - An opportunity for employees to purchase stock (shares) in the company they work for, often at a discount from fair market value. Generally it is provided as an incentive to stay with the employer until the options vest.
EMPLOYMENT INCOME - Income source of individuals, covering income derived from labour or other current or former dependent personal services such as salaries, wages, bonuses, allowances, compensation for loss of office or employment, pensions and, in some countries, certain social security benefits.
ENTITY - In general for tax purposes, an organization, person or party that possesses separate existence. Options include corporations, partnerships, estates and trusts.
ENVIRONMENTAL TAX - Tax imposed for environmental reasons, e.g. to provide an incentive to reduce certain emissions to an optimal level or taxes on environmentally harmful products.
EQUITY CAPITAL - A method of financing a business where money is received by the issuance of shares in the enterprise.
ESOP - Employee stock ownership plan
FAIR MARKET VALUE - The price a willing buyer would pay a willing seller in a transaction on the open market.
FIDUCIARY - A person, company, or association holding assets in trust for a beneficiary.
FINAL TAX - Under tax treaties the withholding tax charged by the country of source may be limited to a rate lower than the rate which would be charged in other circumstances - this reduced rate is then the final tax in the country of source.
FINANCIAL STATEMENT - Report which contains all of the financial information about a company. The report generally consists of a balance sheet, income statement and may include other information as well.
FISCAL YEAR - Any 12-month period which is set for accounting purpose of an enterprise.
FIXED ASSETS - Assets that are held by an enterprise either continuously or for a comparatively long period of time, generally more than one year.
FIXED INCOME - Income which does not fluctuate over a period of time, such as interest on bonds and debentures, or dividends from preference shares as opposed to dividend income from ordinary shares.
FLAT TAX - A tax applied at the same rate to all levels of income. It is often discussed as an alternative to the progressive tax.
FRAUD - Tax fraud is a form of deliberate evasion of tax which is generally punishable under criminal law. The term includes situations in which deliberately false statements are submitted, fake documents are produced, etc.
FUTURES CONTRACT - An agreement between a buyer and seller to exchange particular goods (e.g. securities or commodities) for a particular price at a future date as specified in a standardized contract common to all participants in a market on an organized futures exchange.
GAAP - Generally Accepted Accounting Principles are the rules and practices required to be followed in keeping financial records and books of account.
GENERAL PARTNER - In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner and at least one limited partner.
GLOBAL HEDGING - A risk-management strategy to balance positions of different business units or with unrelated third parties.
GOODWILL - Intangible asset which consists of the value of the earning capacity, location, marketing organization, reputation, clientele, etc. of a trade or business. Goodwill can be transferred for a consideration to another entrepreneur upon the sale of the business as a going concern.
GROSS INCOME - Gross receipts, whether in the form of cash or property, of the taxpayer received as compensation for independent personal services, and the gross receipts of the taxpayer derived from a trade, business or services, including interest, dividends, royalties, rentals, fees or otherwise.
GROSS MARGIN - Ratio of gross profits to gross revenue.
GROSS PROFITS - The gross profits from a business transaction are the amount computed by deducting from the gross receipts of the transaction the allocable purchases or production costs of sales, with due adjustment for increases or decreases in inventory or stock-in-trade, but without taking account of other expenses.
GROSS PROFIT RATIO - Ratio of gross profit to the sales of a business or, alternatively, to the adjusted purchases or "goods consumed" during the accounting period.
GROSS PROFITS TAX - Tax imposed usually at low rates on the gross receipts of a business.
HEAD OFFICE EXPENSES - Where an enterprise with its head office in one country operates through a branch or other permanent establishment in another country, some expenses incurred by the head office, e.g. for general management and administrative expenses or the cost of specific services provided to the permanent establishment, may be deducted in computing the taxable profits of the permanent establishment.
HIDDEN TAX - Indirect tax paid by the consumer without his knowledge.
HYBRID ACCOUNTING METHODS - Term which refers to the situation where a taxpayer used a combination of accounting methods (such as accruals basis accounting or cash basis accounting) for different items of income.
IMPUTED INCOME - The economic benefit a taxpayer obtains through performance of self-provided services or through the use of self-owned property.
INBOUND TRANSACTION - Term which refers to the tax treatment of foreigners doing business and investment in other countries.
INCIDENCE OF TAX - The person who bears the tax burden in economic sense, which could be different from the person paying the tax.
INCOME PROPERTY - Often, real estate that is bought for the income it produces.
INCOME STATEMENT - Statement showing the results of a business operation for a particular period of time. The statement will show the business's revenues and expenses.
INCOME SUBJECT TO TAX - All sources of income liable to tax without taking account of tax allowances.
INCORPORATION - The process by which a company receives a government charter allowing it to operate as a corporation.
INDIRECT-CHARGE METHOD - A method of charging for intra-group services based upon cost allocation and apportionment methods.
INDIRECT COST - Costs that cannot be identified in relation to a particular activity but that, nevertheless, are related to the direct costs (e.g. overhead expenses, costs of supporting departments, and a proper share of research and development (R&D) costs).
INDIRECT TAX - Tax imposed on certain transactions, goods or events. Examples include VAT, sales tax, excise duties, stamp duty, services tax, registration duty and transaction tax.
INPUT TAX - Term used in connection with VAT to denote the tax embodied in purchases made by a trader or entrepreneur who will usually be able to obtain a credit for the tax that his suppliers have paid on the goods supplied to him which form his "inputs".
INSOLVENCY - Inability to pay debts when due
INTERNATIONAL TAXATION - Traditionally, international taxation refers to treaty provisions relieving international double taxation. In broader terms, in includes domestic legislation covering foreign income of residents (worldwide income) and domestic income of non-residents.
INVESTMENT COMPANY - Corporation whose activities consist exclusively or substantially of making investments (i.e. holding property and collection of income therefrom) and whose buying and selling of shares, securities, real estates or other investment property is only incidental to this purpose.
INVESTMENT INCOME - Income derived from the investment of capital, whether money or other property, in income-producing assets or in a profit-making venture without active participation in the production of the income or in the affairs of the venture.
INVOICE BASIS - Method of applying VAT to the price at which the goods or service are invoiced, with a deduction for the tax (if any) charged at previous stages.
ISSUED SHARE CAPITAL - Shares that have been sold to shareholders by the corporation.
JOINT-STOCK COMPANY - Company with legal personality and whose capital is divided into shares. The shareholders are generally liable only to the extent of the nominal value of their shares.
JOINT VENTURE - Term which is loosely used to describe a relationship between parties carrying on an undertaking in common for their individual or common gain. This can be either an incorporated venture or an unincorporated venture.
JURISDICTION - The power, right, or authority to interpret and apply tax laws or decisions.
KNOW-HOW - All undivulged technical information, whether or not capable of being patented, that is necessary for the industrial reproduction of a product or process, i.e. knowing how a product is made or how a particular process works. Payments for know-how may be taxed as royalties in many cases. The distinction from contracts for the provision of services is addressed in the OECD Commentary to Article 12.
LANDED COST - Term used in relation to the importation of goods which means the sum total of the cost of the goods concerned, the amount of customs duties levied on those goods and the expense incurred in unloading them.
LEASE - In general, a lease is a contract in respect of real or personal property, under which the owner of the property grants to another the right to possess, use and enjoy the property for a specified period of time in exchange for periodic payments.
LEGAL ENTITY - Generally, corporations, joint-stock companies and limited liability companies are regarded for tax purposes as having an existence separate from that of their shareholders. Conversely, for tax purposes a partnership is often not regarded as a separate legal entity, its profits being taxed in the hands of the individual partners. What constitutes a legal entity for tax purposes may or may not coincide with what constitutes a legal entity for general law purposes.
LEGAL RESERVE - Under the civil law of some countries corporations are required to maintain a legal reserve for all needs which may arise in the course of the business. Tax law does not allow a deduction for such a reserve.
LIQUIDATION - A company in liquidation is a company in the process of being dissolved or wound up, and its assets, if any, after payment of its debts, distributed to the shareholders.
LISTED COMPANY - Company whose shares are traded on a recognized stock exchange.
LOCAL TAX - In countries where there is a central or federal government and separate levels of government at state, provincial, county or city levels, taxes levied at the lower levels of government are commonly referred to as "local" taxes.
LONG-TERM CAPITAL GAINS - In countries where capital gains are subject to special tax treatment, a distinction may be made between capital gains realized after a short period of time and capital gains realized after a longer period of time. Long-term capital gains may be taxed at reduced rates.
LOSSES - The term may broadly be defined as the excess of expenses over revenues for a period, or the excess of the cost of assets over the proceeds when the assets are sold or otherwise disposed of, or abandoned or destroyed.
LOSS RELIEF - Most income tax laws provide some form of relief for losses incurred, either by carrying over the loss to offset it against profits in previous years (carry-back) or in future years (carry-forward) or by setting off the loss against other income of the same taxpayer in the year in which the loss was incurred.
LUMP-SUM DEDUCTIONS - Deduction, often from income, for the computation of taxable income, which does not reflect the factual situation.
LUMP-SUM TAXATION - The tax laws of some countries allow the tax authorities to levy a fixed amount of taxes on income in certain circumstances which deviates from the normal method of applying a rate to income to ascertain taxes payable.
MANAGEMENT FEE - Broadly, a fee or charge imposed for management and/or administrative services of a parent company or head office.
MERGER - Term generally used to describe a number of operations involving the reorganization of companies.
MINIMUM TAX - In certain countries corporations are always liable to a certain amount of annual tax, regardless of whether they have realized a profit.
MINISTRY OF FINANCE (MOF) - Department of government generally responsible for formulating monetary policy, implementing the tax laws, collecting revenue, etc.
MORTGAGE - A written instrument that creates a lien upon real estate as security for the payment of a specified debt.
MULTIPLE CAPTIVES - Company which has more than one captive insurance company.
MUTUAL FUND - A type of regulated investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. Or portfolio of securities held by an investment company on behalf of investors.
NET INCOME - Net income is gross income less deductible income-related expenses. Many countries levy income tax on this basis.
NET OPERATING LOSS - Amounts by which business expenses exceed income in a tax year. A trader's operating losses constitute broadly the excess of his operating expenditure over receipts from his operations.
NET PROFIT - Difference between receipts from business transactions and deductible business expenses, subject to any adjustments for tax purposes.
NET PROFIT MARGIN - Ratio of operating profits to gross income (or revenue)
NET WEALTH TAX - See: Net worth tax
NET WORKING CAPITAL - Current assets less current liabilities.
NET WORTH TAX - Many European countries impose the net worth tax in the context of property taxation. The taxable base for resident taxpayers is normally the taxpayer's worldwide net worth, i.e. total assets less liabilities along with deductions and exemptions specially allowed by tax laws.
NON-RESIDENT - Broadly speaking, a person who spends most of the calendar year outside his country of domicile. Non-residents are usually taxed on income derived from sources within the taxing jurisdiction whereas residents may be taxed on worldwide income.
OFFSHORE COMPANY - Term usually applied to a company registered in a country (often a tax haven) other than the country or countries in which it carries on its business activities. An offshore (or non-resident owned) company is commonly used for captive insurance, marketing abroad, international shipping and tax shelter schemes.
OPERATING LEASE - Lease where the lessor is regarded as the owner of the leased asset for tax purposes. Cf. Finance Lease
OPTION - Derivative financial instrument consisting of a firm agreement granting one party the right but not the obligation to buy or sell commodities, securities or currencies at a specified future date at a specified price.
OUTBOUND TRANSACTION - Term which refers to the tax treatment of a country's residents (and perhaps citizens) doing business and investing abroad.
PARENT COMPANY - Company with a substantial participation in the share capital of another company, called the subsidiary.
PARTNER - A member of partnership
PAYROLL TAX - Tax charged on an employer's payroll (i.e. gross salaries, wages and other remunerations) paid to his employee without regard to their domicile, family status or other individual circumstances.
PER CAPITA - Latin for "for each person"
PORTFOLIO INVESTMENT - A portfolio investment in a company would be a holding of shares amounting to a small portion of the total shares of the company, e.g. less than 10%. Portfolio investors may receive different tax relief or other treatment in respect of their dividends under tax treaties from those accorded to other direct investors.
POWER OF ATTORNEY - Instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal.
PROFESSIONAL SERVICES - Services independently performed by members of the liberal professions (i.e. physicians, lawyers, accountants, etc.) and other activities of an independent character.
PROPERTY TAX - Group of taxes imposed on property owned by individuals and businesses based on the assessed value of each property.
RATES - Local tax levied in Ireland and previously the UK. Rates are levied on the occupiers of real property on the basis of the annual rental value of the property.
REALIZED GAIN/LOSS - Actual gain/loss realized from the disposal of an asset.
REAL PROPERTY (REAL ESTATE) - Land and everything more or less attached to it. Also referred to as “Realty”.
REBATE - Term which in certain countries is synonymous with a tax credit.
RECOVERY OF TAX - From the taxpayer's point of view, this may mean a refund of tax. From the tax authorities’ point of view, it may mean the collection of tax which is in arrears.
REDEMPTION - The acquisition by a corporation of its own stock in exchange for property, without regard to whether the redeemed stock is cancelled, retired, or held as treasury stock.
REFUND (OF TAX) - Tax repaid to a taxpayer
REGISTRATION DUTY - Fixed or variable duty levied on documents which relate to the transfer of ownership or the right to use movable or immovable property, the formation or any change of status of a company, etc.
RESIDENT - A person who is liable for tax in a country or state because of domicile, residence, place of management, or other similar criterion.
RETURN OF CAPITAL - A distribution that is not paid out of the earnings and profits of a corporation.
SAFE HARBOUR - Where tax authorities give general guidelines on the interpretation of tax laws, these may state that transactions falling within a certain range will be accepted by the tax authorities without further questions.
SALES TAX - Tax imposed as a percentage of the price of goods (and sometimes services). The tax is generally paid by the buyer but the seller is responsible for collecting and remitting the tax to the tax authorities.
SERVICE COMPANY - Company within a multinational group of companies which generally provides support services, such as administration, sales information, post-sales service or market research, for the operating divisions of the group.
SHAREHOLDER ACTIVITY - An activity which is performed by a member of an MNE group (usually the parent company or a regional holding company) solely because of its ownership interest in one or more other group members, i.e. in its capacity as shareholder.
SHAREHOLDERS' EQUITY - The total assets minus total liabilities of a corporation, also called stockholders' equity or net worth.
SHORT-TERM CAPITAL GAINS - Capital gain derived from the disposal of assets which have been held for a comparatively short period of time.
SINGLE ENTITY APPROACH - Method of taxing a legal entity that conducts its business through a permanent establishment rather than through a subsidiary company. Under the single entity approach, a head office and a permanent establishment are treated as one taxpayer for tax purposes, even though they may be considered separate entities for purposes of accounting or commercial law.
SPIN-OFF - A type of corporate reorganization by which the shares of a new corporation (or the subsidiary company) are distributed to the original shareholders (or the parent's shareholders) without these shareholders surrendering any of their stock in the original (or parent) corporation.
STOCK EXCHANGE TURNOVER TAX - Tax levied on the sale of securities on the stock exchange market.
STOCK OPTION -
(1). The right to purchase or sell a stock at a specified price within a stated period
(2). Employee stock option
SUBSIDIARY COMPANY - Company effectively controlled by another company (i.e. the parent company). A variety of criteria, including share ownership ratio, may be employed to determine whether one company is a subsidiary of another company for tax purposes.
SWAP - Derivative financial instrument in which two parties agree to exchange payments calculated by reference to a notional principal amount. In the classic interest rate swap agreement two parties contract to exchange interest payments based on the same amount of indebtedness of the same maturity and with the same payment dates; one party provides fixed interest rate payments in return for variable rate payments from the other party and vice versa.
SYNDICATE - A group of individuals who have formed a joint venture to undertake a project that the participants would be unable or unwilling to pursue alone.
TAX - The OECD working definition of a tax is a compulsory unrequited payment to the government.
TAXABLE BASE - The thing or amount on which the tax rate is applied, e.g. corporate income, personal income, real property.
TAXABLE PERIOD - Taxes are levied by reference to a period of time called the "taxable period". Tax year
TAX AUTHORITIES - The body responsible for administering the tax laws of a particular country or regional or local authority.
TAX BURDEN - For public finance purposes the tax burden, or tax ratio, in a country is computed by taking the total tax payments for a particular fiscal year as a fraction or percentage of the Gross National Product (GNP) or national income for that year.
TAX COMPLIANCE - Degree to which a taxpayer complies (or fails to comply) with the tax rules of his country, for example by declaring income, filing a return, and paying the tax due in a timely manner.
TAX HAVEN - Tax haven in the "classical" sense refers to a country which imposes a low or no tax, and is used by corporations to avoid tax which otherwise would be payable in a high-tax country. According to OECD report, tax havens have the following key characteristics; No or only nominal taxes; Lack of effective exchange of information; Lack of transparency in the operation of the legislative, legal or administrative provisions.
TAXPAYER IDENTIFICATION NUMBER - In some countries taxpayers are given an identification number which must be used when filing a tax return and assessing taxes and for all other correspondence between the taxpayer and the tax authorities.
TAX RELIEF - Generic term to describe all methods used to reduce tax liability without regard to the particular way it is accomplished.
THIN CAPITALISATION - A company is said to be "thinly capitalised" when its equity capital is small in comparison to its debt capital.
TRADE OR BUSINESS - A regular and continuous activity undertaken for a profit, other than that of an investor trading in securities.
TRANSFER PRICING - A transfer price is the price charged by a company for goods, services or intangible property to a subsidiary or other related company. Abusive transfer pricing occurs when income and expenses are improperly allocated for the purpose of reducing taxable income.
TRANSFER PRICING ADJUSTMENT - Adjustment made by the tax authorities after making a determination that a transfer price in a controlled transaction between associated enterprises is incorrect or where an allocation of profits fails to conform to the arm's length principle.
TRANSFER TAX - Tax levied on the transfer of goods and rights, e.g. purchase and/or sale of securities and immovable property.
TRANSPORTATION TAX - Tax levied on vehicles, ships and aircraft using public highways, rivers, and airports maintained by the government.
TURNOVER - Volume of business of an enterprise as set forth in the profit and loss account. It is usually measured by reference to the gross receipts, or gross amounts due, from the sale of goods or services, etc. supplied by the entity.
TURNOVER TAX - General term used to refer to the different forms of consumption and sales taxes.
UNDER-CAPITALISATION - See: Thin capitalisation
UPSTREAM DIVIDEND - Dividends flowing from a subsidiary company to its parent company.
USE TAX - Tax on goods which are used within the taxing jurisdiction although the goods were purchased in another jurisdiction
VALUATION PRINCIPLES - Tax law principles regarding valuation of business and non-business assets, and inventory.
VALUE ADDED TAX (VAT) - Specific type of turnover tax levied at each stage in the production and distribution process. Although VAT ultimately bears on individual consumption of goods or services, liability for VAT is on the supplier of goods or services. VAT normally utilizes a system of tax credits to place the ultimate and real burden of the tax on the final consumer and to relieve the intermediaries of any final tax cost.
VENTURE CAPITAL - Form of capital investment for the establishment of a new business or new product development in an existing business, often in exchange for equity.
VERTICAL EQUITY - Doctrine which holds that differently situated taxpayers should be treated differently, i.e. taxpayers with more income and/or capital should pay more tax.
WAGE TAX Tax - levied at source as a withholding on wages; taxes thus withheld are usually offset against final income tax liability (if any).
WHITE PAPER - Government document announcing government policy and practice on a specific issue or issues.
WITHDRAWALS -When income or goods are withdrawn from a business by the entrepreneur to his private household (without a consideration), the income or the value of such goods normally constitutes a taxable event in the hands of the recipient for income tax purposes. Similarly, a withdrawal of goods or services for private use constitutes a taxable transaction for VAT purposes in most countries using such a system.
WITHHOLDING TAX - Tax on income imposed at source, i.e. a third party is charged with the task of deducting the tax from certain kinds of payments and remitting that amount to the government. Withholding taxes are found in practically all tax systems and are widely used in respect of dividends, interest, royalties and similar tax payments. The rates of withholding tax are frequently reduced by tax treaties.
WORKING CAPITAL - Funds invested in a company's cash, accounts receivable, inventory, and other current assets (gross working capital). The term usually refers to net working capital, that is, current asset minus current liabilities.
ZERO RATE - The term is used in relation to VAT, where the rate of tax which is in principle levied but at a rate of 0% so that in effect no tax is payable, but will result in refunds of input tax credits.