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 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

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Palma ratio

The Palma ratio is a measure of inequality within a jurisdiction.

The Palma ratio is the share of all income received by the 10% people with the highest disposable income in a jurisdiction divided by the share of all income received by the 40% people with the lowest disposable income within that same jurisdiction.

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Parent Company

A parent company is a company that controls another company (which is then called its subsidiary com­pany) either by owning more than 50% of the share capital of the second company or by controlling the composition of its board of directors.

A parent company may have thousands of subsidiary companies, some of which will themselves be parent companies, in which case they are called intermediate parents. In that case the company at the top of the hierarchy of control is called the ultimate parent company.

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Any (usually unincorporated) arrangement where two or more people agree to work together to undertake a trade and share the re­sulting profits or losses.

A partnership can be between individuals or companies or a mixture of both.

See also limited labiality partnership, which is private legal entity form of partnership.

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A system of deducting tax, national insurance, social security and other payroll tax contributions  owing by employees at source when their employer makes payment to them.

PAYE stands for “pay as you earn“.

The employer is responsible for making payment of the tax owing by their employees to the relevant tax authority within their jurisdiction.

PAYE systems became commonplace after the Second World War as the level of personal income taxes and social security contributions owing by employees increased as the level of average earnings rose in most developed countries. Rules vary from country to country, but the system itself is commonplace.

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Payroll taxes

See social security contributions, national insurance contributions, PAYE and income taxes.

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Permanent establishment

A permanent establishment is an office, factory, or branch of a company or other non-resident person in another jurisdiction.

Under double tax treaties, business profits arising from trade in a country are taxable in that country if there is a permanent establish­ment located within it. The existence of permanent establishments can be subject to dispute as a result.

Permanent establishments may include construction sites or oil platforms in place for over six months. They can also include computer file servers.

Rules regarding permanent establishments can be dependent upon arrangements con­cluded in double tax treaties.

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Politically Exposed Person

A politically exposed person (PEP) is someone entrusted with a public function, such as a politician or employee of a government agency. The term is sometimes inclusive of their relatives and close associates.

Banks and other financial institutions are supposed to treat PEP clients as high-risk clients for money laundering purposes, applying enhanced due diligence at both the inception of the relationship and on an ongoing basis to en­sure that their financial resources do not represent the proceeds of corruption.

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Poll Tax

A tax that levies the same amount of tax on each person liable to pay it irrespective of their ability to pay.

Poll taxes are correctly seen as regressive and so unjust as they do not take into account the capacity that  a person has to make payment of the sum owing in proportion to their income.

The attempt to introduce a poll tax to fund local government in the UK in the late 1980s and early 1990s and the subsequent protests and riots it gave rise to was one of the principal reasons for the downfall of Margaret Thatcher as UK prime minister after eleven years in office.

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Predicate Offence

An underlying crime, such as drug trafficking, which generates illicit money to be laundered meaning that it is a necessary element of building a criminal money-laundering charge. According to the Financial Action task Force tax evasion should be classified as a predicate offence for money laundering but that is not commonplace.

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Preferential tax treatment

A situation in which individuals or companies can negotiate their tax treatment in the state in which they have a tax liability. Pioneered by Switzerland in the 1920s, the arrangement is commonplace in tax havens and secrecy jurisdictions but there has also been evidence of this happening in locations such as the United Kingdom and Ireland as well.

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These are sums paid in cash in advance of the economic benefit of the payment arising, which means that the value attributable to future periods is carried forward as a prepayment. These sums are recorded in current assets on the balance sheet or statement of affairs  of the reporting entity.

Prepayments include deposits paid for work to be done, insurance premiums paid in advance and other such items.

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Private Company

A company whose shares are not quoted on a stock exchange meaning that they are not readily or publicly traded.

The shares in private companies cannot usually be sold without the consent of the company or its other owners, who are also likely to have the first option on acquiring them.

In many countries little or no information need be disclosed on the activities of such companies even though their members enjoy the benefit of limited liability. For the issues arising from this see Companies House or Registrar of Companies.

A company can be private even though very large: the matter is determined solely by whether its shares are quoted on a stock exchange or not.

A private company can be  public interest entity (PIE).


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There are two types of profit. They are realised profit and unrealised profit (see separate glossary entry).

Both increase the capital of a company by increasing shareholder funds. However, only realised profits may be used to make a dividend payment since only they have given rise to a cashflow consequence.

The identification of the difference between realised and unrealised profits is as a result contentious and open to manipulation or arbitrage within accounts.

A realised profit is the outcome of a transaction undertaken during the course of trade that results in the income generated from that trade exceeding the expenses associated with it meaning that a profit is earned that might result in cash being returned to the reporting entity undertaking the trade.

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Progressive taxes

A progressive tax is one where as a person's income increases the amount of that tax that they pay increases in proportion to that income, i.e. their percentage tax rate increases as their income goes up. Compare with regressive taxes and flat taxes.

In a progressive tax system, the overall tax system displays this characteristic.

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This term usually relates to a long term liability of a reporting entity.

A provision is a best estimate of a future obligation owed by a reporting entity as a result of a commitment that it has made to a course of action where the precise sum owing is of uncertain timing or amount on its accounting reference date.

Provisions are one of the areas where the inherent uncertainty in accounts or financial statements becomes readily apparent and the exercise of judgement is required.

See also contingent liabilities.

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Public goods

Public goods are a supply of goods (sometimes) and services (more commonly) that are provided without the intention of profit being made to all members of society, usually by a government, but possibly by a private sector organisation.

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