Tax Glossary

Generally Accepted Accounting Principles are the rules and practices required to be followed in keeping financial records and books of accounts.

Term universally used in the context of a company's debt/equity ratio. A company is highly geared if the ratio of debt to equity is high. Sometimes referred to as capital gearing or leveraging.

A partner who is personally liable for partnership debts.

The method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities).

A tax imposed at one rate with respect to the retail sale of a broad range of classes of items.

Tax imposed to prevent the avoidance of transfer tax (i.e. estate tax and gift tax) over successive generations.

A debt that arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable amount of money.

A transfer of property by a person who faces impending death. The donee thereby becomes the owner of the property, but on the condition that the gift is revoked if the donor does not die.

A gratuitous transfer of property made during the transferor's (donor's) lifetime. In many countries the gratuitous transfer of property is subject to a gift tax.

A risk-management strategy to balance positions of different business units or with unrelated third parties.

Income tax that aggregate income from all sources at the individual (or family unit) level. The income is then taxed at a single progressive rate.

Under the global method, the profits of each member of a multinational enterprise (MNE) are not calculated on the basis of arm's length dealings, but rather the total profit of the enterprise is allocated to the members of the multinational enterprise based on, for example, the turnover of each member, the expenses incurred by each member or the labor cost of each member.

Term used to describe transactions carried out by, inter alia, investment banks and securities dealers, involving financial instruments, financial services and financial goods. It is also known as 24-hour trading since the transactions are carried out continuously during a day in financial markets worldwide.

"Good faith" denotes a state of mind, whereby a person honestly and genuinely believes that certain facts or circumstances are as he says they are.

Multi-stage sales tax levied on purchases (and lessees). Sellers (and lessors) are responsible for collection.

The intangible value of a business based on expected continued customer patronage due to its name, reputation, location, or any other factor.

1981 report submitted to the US Treasury, entitled "Tax Havens and Their Use by United States Taxpayers - An Overview"; it explains the use of US taxpayers make of tax havens, existing anti-abuse measures and proposals for measures to counter such activities.

The period following the due date of taxes during which legal action for recovery of delinquent taxes will not be instituted and interest will not commence to run.

System where the rate of tax increases on marginal amounts as the amount of taxable income rises. Synonym for progressive rate.

Clause temporarily preserving legislation which exists at the time a law is modified or a (tax) treaty is concluded (or modified).

Entry document issued by the US immigration and Naturalization Service (INS) that permits foreign nationals to live permanently in the US and undertake employment.

A test in the US to determine residence of an alien individual, i.e. an alien is considered resident if at any time during the calendar year he is a lawful permanent resident of the US under the immigration laws.

The total amount distributed before any adjustments or considerations for basis.

The total amount distributed from a retirement account before income tax and other deductions are withheld.

All income received in the form of money, goods, property, and services that is not exempt from tax. Gross income includes earned income and unearned income.

A certain percentage of each installment sale payment (after subtracting interest) that is reported as a gain from the sale.

Ratio of gross profit to the sales of a business or, alternatively, to the adjusted purchases or "goods consumed" during the accounting period.

Add back the amount of tax which has been paid to the value of property or other income received. The term includes the process by which corporation add credits (e.g. imputation credits or foreign tax credits) received to net income received before calculating their tax liabilities.

Term used to describe the tax treatment where the profits and losses of associated companies may be grouped together and, in effect, be treated as the aggregated profits of a single enterprise (sometimes called a "fiscal unity").

A person who guarantees, endorses, or provides indemnity agreements with respect to debts owed to others.