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Taxing unrealized gains has caused an entrepreneurial exodus in Norway

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Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#91

Post by no_wizard »

Aloisius wrote: post #83
no_wizard wrote: post #56

Earlier quoted context omitted.

That’s not it. That’s too general. Applying a tax when the financial purpose of the loan is solely to avoid paying any taxes on realizing the gains is what I’m talking about. This is demonstrably a vehicle of tax avoidance used by wealthy individuals to avoid taxes on what they would otherwise have to because they would have to sell the asset otherwise

I've tried to get people to explain to me how this works and I have yet to hear a answer that doesn't end with, paying far more in interest than one would have paid in long-term capital gains or needing to die a few years after the loans to prevent that - or having to sell stock in order to make payments thus paying not only interest, but also capital gains tax. These are variable rate short-term loans. Even the best…

So called Buy Borrow Die strategies are one way[0][1]. Another (and this is what I’m referring to) is leveraging SBLOC[2][3], USLOC, HELOC and alternative asset type loans to borrow against their assets without tax consequences. These loans are made at below market rates of interest more often than not as well. They’re not paying 7.25% on these loans. Yes, banks are willing to take a potential loss on these loans to service the broader financial need of these clients. Particularly if they bring their corporate or investment vehicle business with them.

In the most simplified version of any of this though it either allows you to do the following

- delay paying taxes until you can’t snowball loans any longer. Then you transfer (not sell!) the assets to the bank and they sell it to cover the loan

- pay off the loan through the estate after death, which has its own tax implications can be structured in such a way to further avoid or mitigate taxes on these assets

- In the most common cases it allows the delay of sale long enough that you can cover the loan with a sale of other assets, e.g. real estate which have a different tax structure as well on income derived, and cover the loan that way.

Usually these types of loans are used to buy another investment vehicle, like real estate. Then those assets appreciate and are used to payoff the loan or roll into a bigger loan etc.

You really have to be of a certain asset class to do all this

[0]: https://smartasset.com/investing/buy-borrow-die-how-the-rich...

[1]: https://www.wsj.com/articles/buy-borrow-die-how-rich-america...

[2]: https://www.finra.org/investors/insights/securities-backed-l...

[3]: https://www.businessinsider.com/securities-asset-backed-loan...

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#92

Post by vidarh »

ag56 wrote: post #64
vidarh wrote: post #54

Earlier quoted context omitted.

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.

> 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...

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#93

Post by vidarh »

HPsquared wrote: post #27
freefaler wrote: post #25

This is a bad solution to taxation. It brakes the long-established tax practice of "realization principle". Suppose the same principle was applied to a home owner. At the end of each year your property is evaluated and you're taxed on the difference between last and this years price. You own an asset and this asset is valued by the rating agency as more expensive than before. Now you have a liability that you need to…

The other thing is what happens when the notional value goes down a year later? Do they get a tax refund?

The wealth tax is yearly based on your wealth that year.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#94

Post by cardiffspaceman »

dzhiurgis wrote: post #53
skobes wrote: post #38

Earlier quoted context omitted.

> You own an asset and this asset is valued by the rating agency as more expensive than before. Now you have a liability that you need to pay... Isn't this exactly how property taxes usually work? (In the absence of caps like California Prop 13, that is.) The realization principle is a hallmark of income tax law, but many taxes are not income taxes.

Yes and property taxes are terrible. Tax. Vacant. Land.

Put. A. Farm. On. Each. Plot. Of. Land.

Locally people dodge the remit of the California Coastal Commission by converting land to farms because you can convert a farm to anything.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#95

Post by freefaler »

asadotzler wrote: post #70
freefaler wrote: post #52

Earlier quoted context omitted.

In some states there are, which is also a bad & unjust practice. The difference is that the rates are between 0.49% and 2.5% and reassessment period differs between the states/localities (these are local taxes). This is way less that the proposed Norway taxes and "value" can be established much more justly than a "startup shares".

So, it's OK if it has rules and the Norway laws don't have any rules... is that what you're saying here/

The principle of taxation without value exchanging hands will lead to bad consequences, this is the point I'm trying to make.

What will Norwegian's representatives do they will do. It's stupid and will lead to bad things down the road. Norway is rich and can afford stupid politics for now.

It's also morally wrong, but morality and taxes are not the same.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#96

Post by vidarh »

karencarits wrote: post #88
vidarh wrote: post #67

I've started several companies in Norway. When I moved to the UK, the wealth tax was not even remotely a consideration, even though my shares were at the time valued in the millions - we moved because getting the size investment we needed to grow in Norway was too hard at that time. Yes, it can be a challenge for fast-growing startups where the secondary market is not very liquid, and is something people need to be a…

Note that the total tax burden has, at least seemingly, increased significantly under the current government [1]. So the conditions may have changed [1] https://www.nho.no/tema/privat-eierskap/ny-menon-rapport-kra...

It's a creative presentation that presents it in terms of percentages of taxation of ownership while assuming most wealth tax would be paid with dividends (which makes sense in a mature company, not in a startup, where you might be more likely to find other approaches). It's not changed enough to make much difference from when I dealt with it.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#97

Post by Aloisius »

no_wizard wrote: post #91
Aloisius wrote: post #83

Earlier quoted context omitted.

I've tried to get people to explain to me how this works and I have yet to hear a answer that doesn't end with, paying far more in interest than one would have paid in long-term capital gains or needing to die a few years after the loans to prevent that - or having to sell stock in order to make payments thus paying not only interest, but also capital gains tax. These are variable rate short-term loans. Even the best…

So called Buy Borrow Die strategies are one way[0][1]. Another (and this is what I’m referring to) is leveraging SBLOC[2][3], USLOC, HELOC and alternative asset type loans to borrow against their assets without tax consequences. These loans are made at below market rates of interest more often than not as well. They’re not paying 7.25% on these loans. Yes, banks are willing to take a potential loss on these loans to…

> They’re not paying 7.25% on those loan

The rate I gave was for Bancorp's best SBLOC, for loans of over $10 million.

HELOC rates (home equity loan) are anywhere from 7.65-8.6% right now.

It doesn't take many years before you end up paying more in interest than you would have had to pay in capital gains - and of course, you need to pay back SBLOCs every year with interest, so you're having to sell assets - and paying capital gains.

It wouldn't have been quite so bad when interest rates were low and you could get a line of credit for 3%, but those days are long gone.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#98

Post by freefaler »

vidarh wrote: post #89
freefaler wrote: post #68

Earlier quoted context omitted.

There is a difference between a well-established market with "value" that is established and something much more speculative like other type of assets. If people there are OK with these taxes and don't vote them out it's their choice. My point is that it's a bad and wrong solution with bad consequences. There is data about this: https://www.gemconsortium.org/data And also check how many big companies have been starte…

> If people there are OK with these taxes and don't vote them out it's their choice. My point is that it's a bad and wrong solution with bad consequences. Norway has had this tax for decades, and done just fine. > There is data about this: https://www.gemconsortium.org/data I don't see any data that gives any useful indication about this there. > And also check how many big companies have been started in the last 10…

Taxes are levied on economic activity. In capitalist systems the main economic activity is created by companies by direct tax on profits or direct tax on labor they buy (wages for the workers).

Count the number of companies created and grown in the last 20 years and see the trend. If it's going down your tax revenues will decrease. So indeed number of companies created is a very good proxy for future tax revenues.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#99

Post by tzs »

dzhiurgis wrote: post #53
skobes wrote: post #38

Earlier quoted context omitted.

> You own an asset and this asset is valued by the rating agency as more expensive than before. Now you have a liability that you need to pay... Isn't this exactly how property taxes usually work? (In the absence of caps like California Prop 13, that is.) The realization principle is a hallmark of income tax law, but many taxes are not income taxes.

Yes and property taxes are terrible. Tax. Vacant. Land.

In the US property taxes largely go to fund public schools, local police/fire/emergency medical service, parks, roads, sewer, water, and trash collection.

Generally the amount you need for such services is more a function of how much non-vacant land you have in the area than how much vacant land, so unless switching to just taxing vacant land was accompanied by some tax on something else to cover the aforementioned things it would not work very well.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#100

Post by david38 »

jaredklewis wrote: post #48
cbmuser wrote: post #28

Earlier quoted context omitted.

I have lived in Norway for a year and it’s definitely not as bright as you’re painting it. Rent prices are extremely high and apartments are quite small compared to other European cities. Alcohol is so expensive, that Norwegians go on alcohol shopping tours to Sweden. Trains in Oslo don’t run 24 hours, so you have to take long detours with busses at night or pay obnoxiously high rates when taking a cab. No, Norway is…

He's not "painting" a picture. He's citing statistics. You've countered with an anecdote. Of course data is not perfect, and there are often issues with methodology, data quality, or analysis the data. Even so, I usually find data more persuasive than anecdotes.

Statistics is exactly how people paint. Surely you’ve heard “there’s, damn lies, and statistics”?
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