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What are Taxation Risks?
John Spacey, August 19, 2015 updated on March 21, 2021
Taxation risk is the chance that tax rules may change resulting in losses due to higher than expected taxes. The following are a few examples of taxation risks.
1. Investment RiskAn investor buys the stock of a company incorporated in a developing country. In the past, the country has allowed dividends to be paid to foreign owners without taxation. However, they suddenly announce a 40% tax on dividends to foreign nationals. The value of the stock drops on the announcement as foreign investors sell.
2. Business RisksA small business hires 5 employees and makes financial plans based on current tax laws. After hiring the employees, the business hears of a new payroll tax that employers will need to pay in the coming year. The new tax results in higher costs than anticipated.
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