1.1.1.3 The nature and design of death taxes

Finally, I am of the view that the nature and design of death taxes (which differ from those of other taxes) is the third significant problem of death taxes in a domestic setting. As a matter of example, the wrong perception concerning the “starting point of taxation” in the case of an inheritance tax, which is an example of an acquisition-based death tax, arguably makes the public keener to object to it. To elaborate on this point, an inheritance tax – the most common type of a death tax – is paid by the deceased’s beneficiaries. However, its tax base is determined either by the deceased’s or the beneficiaries’ personal nexus with a state (“the starting point of taxation”) or by an objective nexus in the absence of a personal nexus. Consequently, assuming that the deceased’s personal nexus with a state is the starting point of taxation of an inheritance tax, it may not take much for the public to erroneously regard the deceased as the taxpayer whose property is taxed twice, once during and once after his lifetime.1 Since the majority of inheritance tax laws take the deceased’s personal nexus with a state as the starting point of taxation, such a situation seems to be conceivable. Moreover, the connection of death taxes with civil law (family law, matrimonial property law, and the law of succession) makes the imposition of death taxes less straightforward. For example, the definition of critical terms (such as “residence”, “heir/beneficiary”, “immovable property”) in accordance with civil law sometimes renders the tax system dependent on civil law concepts. The same also applies to several legal arrangements that may be employed in the law of succession: trusts in common law jurisdictions and foundations, fideicommissum and usufruct in civil law jurisdictions.

Solutions to these problems fall outside the scope of this study, which only deals – to start with – with the problems of death taxes (and taxes on gifts, by analogy) in a cross-border setting. Therefore, I take the above problems of death taxes as a given.