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Moving to a new country naturally presents a host of challenges. Moving to a foreign language country however presents even more. You are faced with constant reminders that your ability to effectively communicate has been eroded overnight. I was most disappointed today while cruising around the nearest Aldi supermarket and it hit me that a favourite phrase of mine, ”you can’t compare apples and oranges” doesn’t…well… translate.
I suppoose this is merely one example of how all idioms suffer translation.
But something universal is the perception of the boring tax accountant. I’ve always been at odds with this imagery, resenting that look you get from others when asked “What kind of law do you want to specialise in?”, and “tax” is the response. They almost pity you and run out of words.
No,” I say, “tax law is not tax accounting. Tax law is different. Tax law is fun.
In walks Dr. Stefano Simontacchi to continue his day-before lecture on the fundamentals of income taxation. Cut to slide 34 and we’re discussing depreciation rates and methods; i.e. tax accounting. I’m not even hungry but my stomach begins to moan as my mind wonders to anywhere but here. “What shall I have for lunch today?“ Hang me now. Fast forward a few slides… straight line depreciation, declining balance depreciation, units of production depreciation, depletion, pooling… Wow, what a beautiful garden.
And then, something really fun: Finance Leasing.
And no, that’s not sarcasm.
We got to discussing how different governments view the ownership of the asset under lease agreements. Or, as Mark Edghill put it, who controls the “Risks and Rewards” of the asset making up the subject matter of the lease. In some countries the Government (say country A) always views the ownership of the asset as remaining with the lessor, whereas other countries (say Country B) have a functional test based on who owns the ‘risks and rewards.’ (I.e. is this lease fundamentally a loan? In that case then the lessee ‘owns’ the asset). ‘Owning’ the asset, for tax purposes, is a good thing if you are in Country B, because then you can claim back the depreciation from it on your tax return.
Therefore if a company in Country A leases equipment to a company in Country B under a typical finance lease where B ‘owns’ the asset then, for tax accounting purposes, both companies can account for its depreciation* in their tax returns. [*think Capital Allowances in the UK.] This is essentially what Dr. Simontacchi called a “double dip” tax benefit. — Not a bad plan if company in B is a subsidiary of the company in A….
…or maybe that subsidiary type transaction wouldn’t work that way at all, I’m off to research it.
I’m sure one of my housemates already knows the answer. Either way, cool trick. Clearly “Accounting” translates better in tax than “apples and oranges” translates in Dutch.