The Tax Research glossary seeks to explain the terms used on this blog that refer to more technical aspects of economics, accounting and tax. It recognises that understanding these terms is critical to understanding the economic issues that affect us all the time.
Like the rest of the Tax Research blog, this glossary is written by Richard Murphy unless there is a note to the contrary. It is normative approach and reflects post-Keynesian, heterodox economic opinion with a bias towards modern monetary theory. The fact that many items in that sentence are hyperlinked shows that they are explained in the glossary.
The copyright notices pertaining to the Tax Research blog apply to this glossary.
The glossary is designed to achieve three goals:
- It seeks to provide a short, hopefully straightforward, definition of what a term might mean.
- It then seeks, when appropriate, to explain what the term means within the context in which it is used. This is meant to elaborate the definition to add to understanding.
- It then critiques the term, explaining, if appropriate, what the weaknesses inherent in the term or the situation it describes are. The aim here is to empower the reader to understand the issues behind the nonsense that most professions create around their activity to provide them with a mystique that they rarely deserve and which often hides what they are really up to.
The glossary is not complete. It will grow over time. If you think there are entries that need adding please let me know by emailing glossary@taxresearch.org.uk. Please also feel free to suggest edits. The best way to do this is to copy an entry into Word and then send me a track-changed document indicating the changes that you suggest.
Because of the way in which it is coded this glossary automatically cross refers entries within itself and to the blog that it supports and within the glossary itself but if you think a link is missing please let me know.
Finally, if you like this glossary then you might like to buy me a coffee. It has required the support of a fair few to write it. You can do so here.
Glossary Entries
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
- Land Taxes
- Leverage
- Liability
- Limited liability partnership
- LLP
- Local Provider
- Locally regulated
- Long term liabilities
- Look through
- Loophole
- Loss
Land Taxes
Taxes on land that are distinct from land value taxation.
Land taxes are charged for the occupancy of land that may, or might not, relate to the value of the land itself.
Taxes of this sort are often used by subnational governments as a mechanism for charging for services supplied to properties in the geographic area for which they are responsible
Leverage
Leverage is a term with two, related, meanings within finance.
One use of the term leverage is to describe the use of debt or borrowing (usually, but not always, via corporate bonds) to fund a business. The amount of borrowing in proportion to the owners' or shareholders' investment or equity can be expressed as the debt/equity ratio. Because the rate of return on debt tends to be fixed and that to shareholders is variable the rate of return to shareholders can be increased if it is thought that the rate of profit in a business will exceed the rate of interest on borrowing. The assumption holds good until, of course, profit falls. Then the interest still has to be paid, unlike dividends, and as such a high debt/equity ratio, or leverage, increases the risk of corporate insolvency.
The term can also refer to an investor borrowing to increase the value of shares they can buy in a market where they think profits ion their investments will exceed the cost of interest on their borrowing. The same risk applies to the investor in that case.
Leverage can also be called gearing. The gearing ratio is equivalent to the debt/equity ratio.
Liability
Limited liability partnership
An LLP is a partnership that provides its non-corporate members with limited liability. They are a form of private legal entity.
LLPs are frequently based offshore for tax avoidance purposes but are also available in the UK and other common law countries where they are often used by professional partnerships.
LLPs are corporate entities, like companies, whilst retaining some of the characteristics of partnership arrangements.
LLPs are not taxable in their own right. The members are taxed on their share of the profits instead. This can be abused if offshore entities are members of onshore LLPs in the UK.
LLPs differ from limited partnerships.
LLP
Local Provider
A financial services provider supplying services to entities resident in the jurisdiction in which they themselves operate.
Locally regulated
A transaction or entity that is solely regulated within the jurisdiction in which it is registered or takes place.
A locally regulated entity or transaction cannot by definition be located within a secrecy space because takes place in an identifiable place.
Long term liabilities
Like all liabilities, or creditors, long-term liabilities represent sums that a reporting entity will have to settle in cash in future periods that arise as a consequence of transactions that have taken place before its accounting reference date.
Unlike short term liabilities, in the case of long term liabilities the cash settlement of the sums owing as a consequence of the transactions taking place before the accounting reference date are expected to be paid more than twelve months after that date.
A wide variety of descriptions of long term liabilities might be included in any accounts (financial statements), but those that are more commonplace include:
- Trade creditors owing after more than twelve months.
- Borrowing or loans due for repayment after more than 12 months.
- A deferred tax liability.
- Liabilities owing to a pension fund.
- A provision.
Look through
“Look through" when used as tax terminology refers to a legal person (and some other entities, such as unlimited partnerships) that undertake transactions but whose existence is then ignored when the resulting taxation liabilities are computed because the profits arising are attributed by the tax authority of the jurisdiction in which the liability arises to those persons, whether legal or natural, that have an ownership interest in the entity that is “looked through” and the tax liability is computed upon them in its place. Those members are then liable for the tax due.
Partnerships, whether limited or unlimited are the most commonly “looked through” structures but such arrangements have been adopted for limited companies in some of the UK's Crown Dependencies to avoid the ring-fencing provisions of the EU Code of Conduct for Business Taxation.
Look through legislation is also quite common in many US states.
The most comm9n such entity in the UK is the limited liability partnership.
Loophole
A technicality that allows a person or business to avoid the scope of a law without directly violating that law. Loopholes are crucial to tax avoidance since they are the mechanism by which people ‘get around the law' – which is what tax avoidance involves.
The manipulation of tax loopholes results in outcomes that might appear legal but which conflict with the obvious intention of legislators.
General Anti-Abuse Rules and general anti-avoidance principles are intended to tackle the use of tax loopholes, but not always very effectively as yet due to the reluctance of tax authorities to litigate using such rules and principles.
See also arbitrage and regulatory arbitrage.
Loss
Two types of loss can be recorded in the accounts of a reporting entity. They are realised losses (addressed here) and unrealised losses.
Both types of loss reduce the capital of a company by reducing shareholder funds.
A realised loss is the outcome of a transaction undertaken during the course of trade that results in the income generated from that trade being less than the expenses associated with it meaning that a loss is earned that might result in cash being paid out to the reporting entity undertaking the trade.
Unrealised losses are described in a separate glossary entry.
Both types of loss reduce the ability of a company to make payment of a dividend. Unlike realised profit and unrealised profit there is no distinction with regard to dividends when it comes to losses. They always reduce the capacity of an entity to make payment of a dividend to ensure that the creditors of the reporting entity are protected.
