Научная статья на тему 'RETHINKING OF INHERITANCE TAXATION IN RUSSIA'

RETHINKING OF INHERITANCE TAXATION IN RUSSIA Текст научной статьи по специальности «Социальная и экономическая география»

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Ключевые слова
INHERITANCE TAXATION / RUSSIAN FEDERATION / TAX LAW / WEALTH TAX / WEALTH TRANSFER TAXES / COMPARATIVE LAW / DEATH TAX / HISTORY OF INHERITANCE TAX

Аннотация научной статьи по социальной и экономической географии, автор научной работы — Ryabova Elena, Ivanushchenko Evgeniya

This article analyses theoretical and practical implications of inheritance tax as the most debatable tax from legal and ethical viewpoints. Some countries have refused taxing inheritance. Others have applied inheritance taxation from national to local levels. The majority of developed countries tax wealth transfers. The primary purpose of inheritance taxation is the allocation of wealth within society and the mitigation of social inequality. Currently, Russia has neither an inheritance tax, nor any other wealth or wealth transfer taxes. This indicates an unfair tax system. The study is based on the analysis of the history of inheritance taxation in Russia and abroad, and the contemporary legal framework and practices in foreign countries. The authors highlight current advantages and disadvantages of inheritance taxation, the functions of the tax, and state considerations related to the potential design of inheritance tax in Russia. The main conclusion is that inheritance tax should be imposed in Russia as a social-oriented mechanism and levied on only the top-wealth societal cluster.

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Текст научной работы на тему «RETHINKING OF INHERITANCE TAXATION IN RUSSIA»

RETHINKING OF INHERITANCE TAXATION IN RUSSIA

ELENA RYABOVA,

Lomonosov Moscow State University (Moscow, Russia)

EVGENIYA IVANUSHCHENKO, National Research University Higher School of Economics (Moscow, Russia)

https://doi.org/10.17589/2309-8678-2021-9-1-34-57

This article analyses theoretical and practical implications of inheritance tax as the most debatable tax from legal and ethical viewpoints. Some countries have refused taxing inheritance. Others have applied inheritance taxation from national to local levels. The majority of developed countries tax wealth transfers. The primary purpose of inheritance taxation is the allocation of wealth within society and the mitigation of social inequality. Currently, Russia has neither an inheritance tax, nor any other wealth or wealth transfer taxes. This indicates an unfair tax system. The study is based on the analysis of the history of inheritance taxation in Russia and abroad, and the contemporary legal framework and practices in foreign countries. The authors highlight current advantages and disadvantages of inheritance taxation, the functions of the tax, and state considerations related to the potential design of inheritance tax in Russia. The main conclusion is that inheritance tax should be imposed in Russia as a social-oriented mechanism and levied on only the top-wealth societal cluster.

Keywords: inheritance taxation; Russian Federation; tax law; wealth tax; wealth transfer taxes; comparative law; death tax; history of inheritance tax.

Recommended citation: Elena Ryabova & Evgeniya ivanushchenko, Rethinking of Inheritance Taxation in Russia, 9(1) Russian Law Journal 34-57 (2021).

Table of Contents

Introduction

1. Literature Review

2. The History and Current Framework for Inheritance Taxation in Russia and Foreign Countries

3. Advantages and Disadvantages of the Inheritance Tax

4. Considering Russian Tax System from the Inheritance Taxation Viewpoint

Conclusion

Introduction

inheritance tax is one of the most debatable taxes from the point of view of legal and moral applications. Currently, no inheritance tax exists in contemporary Russia. However, this fact does not decrease the importance and relevance of the topic. inheritance tax is an issue where social, moral, and legal aspects are closely intertwined. At first sight, inheritance tax collection is easy and inexpensive. it might be imposed concerning obvious income, which is gained due to ownership transfer, which can play a significant role in solving the task of property and income redistribution within society. This goal has been desirable for those governments that have imposed an inheritance tax. Meanwhile, the tax is related to the death of a relative. this fact is usually criticized and classified as immoral. in addition, the tax base is debatable as the property transfer occurs within one family and is caused by objective and natural circumstances.

Foreign countries have resolved different approaches to this question. Some countries have refused taxing inheritance. others have had extensive practices of inheritance taxation both at national and local levels. However, according to the oECD, revenues from death taxes have been declining, from 1.1 per cent of total taxation in 1965 to 0.4 in 2018,' meaning the tax base has been narrowing for the last 20 years. Studying foreign doctrines and practices can be essential in solving several issues concerning the prospects of introducing inheritance tax in Russia. Do any prerequisites exist for inheritance tax introduction in Russia? if so, what mechanism should be applied to inheritance tax; should it be income or property tax? What government level should establish the tax; federal, regional, or local? This article aims to answer these questions.

1 OECD, Tax Policies for inclusive Growth in a Changing World: OECD Report to G-20 Finance Ministers and Central Bank Governors (2018), at 20 (Oct. 18, 2020), available at http://www.oecd.org/g20/Tax-policies-for-inclusive-growth-in-a-changing-world-OECD.pdf.

For the article's purposes, the authors should clarify the terminology used. inheritance taxation is a broader term than inheritance tax, including different taxes and duties, which should be paid related to the succession. inheritance taxes may be categorized depending on the fact on whose rights, the heir's or the legatee's, the tax is levied upon. For example, in the U.S., a tax imposed on the right to pass property at death is called estate tax, and a tax imposed on the right to receive property from a legatee is called inheritance tax. The death tax is used as an integrated short term referring to estate and inheritance taxes simultaneously. in different countries and in different historical periods, the death tax could be formed as a legacy or succession tax. Currently, two forms of death taxes, namely estate and inheritance taxes are universally applied. Moreover, the OECD also follows this terminology. We follow these terms for the article's purposes as well.

The Constitution of the Russian Federation provides for the right to inheritance and guarantees such rights (Art. 35, para. 4). However, scholars discuss the imposition of inheritance tax. On the one hand, there is an opinion that citizens have the right to dispose of their own property independently, and that death tax is immoral. Henceforth, the imposition of inheritance tax is unacceptable. On the other hand, scholars confirm that inheritance tax is not an extraordinary tax, and its collection is common practice. Besides the fact that inheritance tax delivers income to budgets, it effectively mitigates property inequality and, therefore, the imposition of such a tax may become an effective economic tool.

1. Literature Review

Historically, inheritance taxation has been routinely studied by scholars both in economics and law. issues on inheritance taxes, or as they have been called in AngloSaxon countries "death taxes," were touched upon among other numerous issues on tax law and taxation, for instance, in books of the 18th, and the beginning of the 19th centuries by Smith,2 ianzhul,3 Bastable,4 Tarasov,5 and Berendts.6 it was also studied autonomously, highlighting specific aspects of the inheritance taxation.7

in the 18th century, Smith studied inheritance taxation in Europe. He considered inheritance taxation as a type of property transfer tax along with taxation of property sale and purchase. He supposed that the existing inheritance taxation system

2 Смит А. Исследование о природе и причинах богатства народов [Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations] (2018).

3 ЯнжулИ.И. Основные начала финансовой науки: Учение о государственных доходах [ivan i. ianzhul, The Fundamentals of Financial Science: The Treatise on State Revenues] 566 (2002).

4 Charles F. Bastable, Public Finance (1903).

5 Тарасов И.Т. Очерки науки финансового права [ivan Т. Tarasov, Essays on Financial Law] 616 (2004).

6 Берендтс Э.Н. Русское финансовое право [Edward N. Berendts, Russian Financial Law] (2014).

7 For instance, the social and fiscal role of the tax, the historical background of inheritance taxation, etc.

was too complex and useless, aimed at increasing the monarchs' revenues. Smith preceded the socialist ideas on social inequality, which occurred a hundred years later and induced the consideration of inheritance taxation as a measure against wealth inequality.8

The historical background of inheritance taxation has been also studied worldwide. For example, Howe mentions inheritance tax in his research on the historical background of European countries.9 Historically, death taxes (including inheritance tax) were used as a source of revenue in times of crisis, but then it was instituted as part of the tax system.10 in the second part of the 20th century, foreign scholars focused on the value and importance of the inheritance tax. in the U.S., the Musgraves put forward the thesis of inequality constraint caused by the imposition of such a tax.11

Among contemporary scholars, Joulfaian, researched the impact of estate tax in the U.S. on individuals' behaviour. The author described how estate tax affects savings by parents and heirs, labour supply of heirs, choice between lifetime gifts and bequests, charitable contributions, and other behavioural effects.12 James R. Hines Jr. show that there are distinctions between inheritance and estate taxes related to the taxation of property in large and small families.13 Lowenstein & Kisska-Schulze studied the issue of the constitutionality of the U.S. estate tax imposed at the federal level in 1916, concluding that this tax "... infringes on the United States Constitution from a "strict constructionist" viewpoint."14 Boadway, Chamberlain, and Emmerson researched the system of wealth and wealth transfer taxes in the UK, elucidating the current problems of this system. This paper might be useful for studying inheritance taxation regardless of a country of origin because the authors highlight such common problems of inheritance taxes as double taxation, a high risk of tax avoidance, and failure to achieve desirable goals.15

in Russia, the pre-revolutionary and post-soviet scholars researched the issues of inheritance taxation.16 We could not discover any significant papers on inheritance

8 Smith 2018, at 796.

9 Samuel B. Howe, Essentials in Early European History 223 (1913).

10 Darien B. Jacobson et al., The Estate Tax: Ninety Years and Counting, 27(1) Stat. Income Bull. 118 (2007).

11 Richard A. Musgrave & Peggy B. Musgrave, Public Finance in Theory and Practice 438 (5th ed. 1989).

12 David Joulfaian, What Do We Know About the Behavioral Effects of the Estate Tax?, 57(3) B.C. L. Rev. 843 (2016).

13 James R. Hines Jr., Taxing Inheritances, Taxing Estates, 63(1) Tax L. Rev. 189 (2010).

14 Henry Lowenstein & Kathryn Kisska-Schulze, A Historical Examination of the Constitutionality of the Federal Estate Tax, 27(1) Wm. & Mary Bill Rts. J. 123 (2018).

15 Robin Boadway et al., Taxation of Wealth and Wealth Transfers in Dimensions of Tax Design: The Mirrlees Review 737 (James Mirrlees et al. eds., 2010).

16 For instance, F. Menkov, who believed that the inheritance and gift tax, like all taxes on circulation, is a special type of property taxation.

taxation dating to the Soviet period. At the end of the 19th and in the beginning of the 20th centuries, many prominent scholars in imperial Russia paid attention to inheritance taxation. Genzel studied inheritance tax in England.17 Later, Ozerov investigated the issue of the control function of inheritance tax. The control function of inheritance taxation can be explained by the description of all transferred property that can be purposefully hidden before the legatee's death. if a legatee had avoided taxes before their death, fines should be set on the inheritance. Moreover, Ozerov emphasized that inheritance taxation aids in reducing wealth inequality. Ozerov raised another issue related to the nature of inheritance tax as a tax or stamp duty. The author concluded that the classification of inheritance tax as stamp duty could be an option for those countries where tax rates are too low.18

Concerning the nature of inheritance tax, Turgenev classified it as a tax on capital. That means that the tax is imposed on wealth transfer from one person to another. inheritance tax is determined not only by the value of capital, but also by the relationship between legatee(s) and heir(s). Turgenev pointed out that wealth transfers from parents to children should not be taxed.19

in contemporary Russia, inheritance taxation was the subject of scholarly attention at the end of the 1990s and the beginning of the 2000s when Russia still enforced inheritance tax. in 2005, the tax was cancelled. Nowadays, there is a shortage of secondary law sources on inheritance tax in Russia due to its absence. Current scientific data on death taxes is primarily contained in the literature devoted to foreign experiences in taxation, i.e. university textbooks. The authors use Russian academic sources on inheritance taxation primarily written before 2005.

Antonov researched inheritance taxation in the Russian Federation, showing that this issue has a deep historical base. The author described the legal regime of inheritance taxation in 2003, discovering problematic moments in the law at that time. Antonov emphasized that an heir paid not for "the transfer" of the property, but "in the connection with the transfer." That meant that an heir paid the tax for the receipt of income in the form of the transferred property, but not for the right to ownership of the property. According to Antonov, such a tax should be classified as income tax, but not as property tax.20

in 2004, Apresova researched the issues connected to the introduction of inheritance tax in Russia. She explained that the law did not define all compulsory

17 Гензель П.П. Налог с наследства в Англии: Исследование по истории английских финансов [Pavel P. Genzel, Inheritance Tax in England: Study on the History of English Finance] (1907).

18 Озеров ИХ. Основы финансовой науки [ivan Kh. Ozerov, Fundamentals of Financial Science] 506 (1909).

19 Тургенев Н.И. Опыт теории налогов [Nikolay i. Turgenev, Tax Theory Experience] 114 (1819).

20 Антонов Н.Н. Правовой режим налога с имущества, переходящего в порядке наследования или дарения: дис. ... канд. юрид. наук [Nikolay N. Antonov, The Legal Regime of Tax on the Property Transferred by Inheritance or Donation: Thesis for a Candidate Degree in Law Sciences] (2003).

components of the tax. For example, the tax period was not defined. Thus, the scholar considered inheritance tax as stamp duty.21

Shukshina investigated constitutional principles of restrictions on the right to inheritance. The scholar analysed both rulings of the Russian Constitutional Court and European Court of Human Rights, concluding that tax rates for inheritance tax should be set in accordance with the national legislator's position.22

One of the important questions that have also been studied by scholars is the restriction on the hiding of inherited assets from the Russian authorities in offshore countries. Scholars pay close attention to the problem of tax evasion.23 Mayburov noticed the importance of studying foreign experiences, taking closely into account the existing European practices in inheritance taxation among those countries that have similar federal structure to that of the Russian Federation.24

Thus, scholars of the 19th-20th centuries have clearly defined a scope of inheritance taxation. inheritance tax has been considered as a necessary element of the tax system, either as a special type of property tax or an additional component of income taxation. The OECD has also examined inheritance taxation, which is classified as part of property taxation (estate or wealth transfer taxation). The OECD compared inheritance tax with taxes on net wealth, concluding that this tax is a popular mechanism reducing wealth inequality in industrialized countries.25 The World Bank maintains the same position. in 2006, it delivered a report on "Equity and Development."The World Bank was strongly in favour of the imposition of inheritance tax that could aid in the reduction of wealth concentration and prevent extreme concentrations of wealth passed from one generation to another. At the same time, tax rates should be as low as possible.26

21 Апресова Н.Г. Правовой режим налогообложения имущества в Российской Федерации: дис. ... канд. юрид. наук [Nana G. Apresova, The Legal Regime of Property Taxation in the Russian Federation: Thesis for a Candidate Degree in Law Sciences] (2004).

22 ШукшинаЖ.А. Конституционное регулирование права наследования: дис. ... канд. юрид. наук [Zhanna A. Shukshina, Constitutional Regulation of the Right of Inheritance: Thesis for a Candidate Degree in Law Sciences] (2012).

23 Стиглиц Дж. Экономика государственного сектора [Joseph Е. Stiglitz, Economics of the Public Sector] 553 (1997).

24 Налоговая политика: теория и практика [Tax Policy: Theory and Practice] 388 (igor A. Maiburov ed., 2010).

25 See OECD 2018, supra note 1, at 51.

26 The World Bank, Equity and Development, World Development Report (2006), at 177 (Oct. 18, 2020), available at http://documents1.worldbank.org/curated/en/435331468127174418/pdf/322040Worl d0Development0Report02006.pdf.

2. The History and Current Framework for Inheritance Taxation in Russia and Foreign Countries

inheritance tax has a lengthy history dating back to ancient Egypt as early as 700 B.C.E. in Ancient Rome, inheritance tax was used to solve fiscal and social problems. in 6 C.E., Emperor Augustus imposed an inheritance tax (vicesima hereditatis). The tax rate was 5 per cent and inheritance tax was imposed only on free citizens of Rome. Only inheritance from close relatives was exempted from the tax.27

Smith noticed that inheritance taxes were part of revenues for European sovereigns. He described inheritance taxation in Holland, France, England, and some Swiss cantons.28 As ianzhul highlighted, inheritance taxation in the Middle Ages was based on feudalism when any land ownership was considered just as the right to temporary tenure and the landlord's supreme right.29 in the 17th century, the system of inheritance taxation was a combination of stamp and notary fees. in some countries, both fees might have been imposed for example in France, and in others only the stamp duty, as in the case of England.30 As Hanson noticed,

[T]he duty upon probates and letters of administration was first imposed in England, in 1694, by 5 & 6 Will. And Mary, c. 21, entitled,"An act for granting to their Majesties several duties upon vellum, parchment, and paper, for four years, towards carrying on the war against France," which made a sum of five shillings payable throughout England, Wales, and Berwil-upon-Tweed, "for every skin or piece of velum or parchment, sheet or piece of paper upon which any probate of a will, or letters of administration for any estate above the value of £20 shall be engrossed or written."31

Related to England, the duty was supplemented by a legacy tax in 1780. At first, the tax was collected by means of a stamp affixed to the receipt, evidencing the payment of a legacy or share in the personal property of a deceased person. in 1853, the probate duty tax and legacy tax were supplemented by a tax known as the succession duty. By the finance act of 1894, the probate duty tax was superseded by what was termed the estate duty.32 inheritance taxation in the United Kingdom evolved from the 1694 stamp duty to the current inheritance tax introduced in 1986.

27 Ianzhul 2002.

28 Smith 2018, at 796.

29 See Ianzhul 2002, at 529.

30 See Smith 2018, at 794-795.

31 Alfred Hanson, The Acts Related to Probate, Legacy, and Succession Duties (1870).

32 Knowlton v. Moore, 178 U.S. 41 (1900).

Concerning the current inheritance tax in the United Kingdom, as Boadway, Chamberlain, and Emmerson highlighted,

... inheritance tax, despite its name, is a tax on the donor rather than a tax on the inheritance received by the donee. it is levied at a flat rate of 40 per cent on estates above a prescribed threshold, which in 2007-08 was set at £300,000 ("the nil rate band") which is approximately ten times mean annual full-time earnings.33

The abovementioned threshold is indexed annually. in 2020, the threshold is £325 000. The tax base includes not only value estate at death, but also lifetime gifts in case they have been given within the last seven years of the donor's life.

inheritance taxation is considered not only as a kind of estate or property taxation, but also as wealth transfer taxation. it is an important feature that allows for defining tax systems aimed at wealth distribution in society. Other redistributive taxes include capital income taxes, progressive income taxes, and net wealth taxes. The latter are not widespread nowadays.34

Most OECD countries maintain taxes on wealth transfers. in 2017, 26 of the 35 OECD countries imposed taxes on wealth transfers (inheritance, estate, and gift taxes), including Austria, Belgium, Canada, France, Germany, Hungary, iceland, italy, Japan, Korea, Netherlands, Spain, Switzerland, the United Kingdom, and the U.S. The general trend for these taxes has been to move away from estate taxes, which are levied on the deceased donor towards inheritance, and gift taxes that are levied on beneficiaries.35 Foreign countries can be divided into two categories: the first category consists of countries where the tax is levied on inherited property. in others, the tax is levied on the inheritance received by a specific heir.

As Shukshina emphasized, foreign experience demonstrates various approaches to family protection from the taxation viewpoint. One model is based on the establishment of high tax rates on inheritance for non-close relatives of the legatee. Another model is characterized by the priority of inheritance under the law with the obligatory distribution of part of the property among members of the legatee's family.36

These models can also be combined. For example, in Spain, the legatee's children have the inherent right to a part of the estate and all heirs with no exemptions

33 See Boadway et al. 2010, at 743.

34 Isabelle Joumard et al., Tackling Income Inequality: The Role of Taxes and Transfers, 1 OECD Journal: Economic Studies 37 (2012).

35 Thomas A. McDonnell, Wealth Tax: Options for its Implementation in the Republic of Ireland, NERI Working Paper No. 6 (September 2013), at 13 (Oct. 18, 2020), available at https://www.tasc.ie/assets/files/pdf/ tasc_neri_wealth_tax_tom_mcdonnell.pdf.

36 See Shukshina 2012, at 13.

must pay inheritance tax. There are three levels of government in Spain - national, subnational represented by regional entities, and local. The tax has been imposed at the national level, but regional entities have powers to modify the tax components, e.g. deductions and rates. All assets should be valued by a market price in accordance with the National inheritance Tax Law. in Spain, regional entities have been empowered to impose inheritance tax rates since 1997. The influence of the regional components of inheritance taxation on estate apportionment has shown that taxation can lead to changes in the portions inherited by spouses and descendants. As the net-of-marginal tax rate was increased by 1 per cent the probability that spouses would inherit the entire estate has also increased by 4.2-6.6 per cent. This means that heirs are more likely to request the property that corresponds to them by the law to reduce tax burden because of the deductions imposed by the law. For example, in Catalan, tax deductions were introduced for heirs older than 74.37

in the period from 2011 to 2013, due to the quasi-repeal of inheritance tax on wealth transfer to close relatives, an average value of property inherited by close heirs increased by 39.56 per cent in 2011, a 99 per cent discount on the tax liability was introduced, i.e. the taxable base was reduced, demonstrating the importance of inheritance taxation from the regulatory function standpoint.38

it is interesting that in Spain before 2014, there were discriminatory inheritance taxes. Firstly, there were differences between inheritance taxes in different regional entities. Secondly, the reduction of inheritance tax might have been done only in the cases if heirs and legatees were Spanish residents and had a physical connection with the regional entity. That means that if a legatee or heir was a non-resident in Spain, national inheritance tax should have been paid, therein, at a higher tax rate. in 2014, a modified European law (Law 26/2014 of 27 November) was passed due to a decision of the European Commission. Thus, Spanish inheritance became nondiscriminatory. This means that even if heirs and legatees are non-residents in Spain, but have the EU residence, national and regional allowances are still applicable. However, if a person is a non-resident in Spain or the EU, then they do not benefit from regional or national allowances.

Currently, in Spain, inheritance tax has been levied on heirs and depends on the degree of relationship. Heirs are classified in groups based on age and relationship between them and the deceased. Groups consisting of descendants younger than 21, spouses, and grand(parents) are considered as close heirs, while the other two groups are considered as distant heirs. A tax base of inheritance tax is defined as the sum of property transferred to an heir, added by specific assets and lifetime insurance benefits.39

37 Mariona Mas Montserrat, Essays on Wealth Taxation, Avoidance and Evasion Among the Rich, PhD dissertation, University of Barcelona (2019), at 8.

38 Maria de Castro, Wills and Inheritance Taxes in Spain (2011) (Oct. 18, 2020), available at https://issuu. com/mariadecastro/docs/spanish_wills_and_inheritance_tax_r_.

39 See Montserrat 2019, at 11.

There are some differences between inheritance taxation in Spain and other OECD countries. For example, all beneficiaries must declare inherited property. Moreover, the tax must be paid before the sale of property. An additional levy of 5 per cent is withheld every three months, following a six-month period, which provides the obligation to pay the tax. The maximum of the additional levy is 20 per cent.

Nowadays, there are some difficulties connected to inheritance taxation in Spain. The primary issue is double taxation. This problem is intricately connected with such legal statuses as domicile and residency. This issue is especially important for British expatriates because inheritance laws in the UK and Spain are based on the abovementioned different concepts that can lead to the tax liability related to both the UK inheritance and Spanish succession simultaneously. While changing residency might be easy and, for example, caused by the temporary move to another country due to employment, changing the domicile is an arduous task, which is exemplified by the case involving actor Richard Burton.40

Burton was born in the UK but died in Geneva. The last several years before his death, the actor had not lived in the UK and had not paid the UK taxes. However, if a person has an intention to return to the UK, his or her UK domicile is sustained. Burton bought burial plots in his town of origin in Wales. The purchase indicated Burton's intention to return. HMRC - the UK's tax, payments, and customs authority -successfully argued that the actor was still domiciled in the UK and, therefore, had to pay inheritance taxes. The implementation of different criteria for inheritance taxation in different countries might lead to financial troubles for taxpayers and the violation of their right to avoid double taxation.

in the U.S., stamp tax was imposed in 1797 as "a tax on the paperwork in processing wills on probate and estate administration for the purpose of funding the United States Navy."41 Stamps were required on receipts and discharges from legacies and distribution of property. There was a value limitation meaning that inheritance tax was collected on bequests valued higher than $50. in 1802, the tax was repealed.

The budget deficiency in the period of the American Civil Law determined the need for the imposition of inheritance tax again. The Revenue Act of 1862 created both inheritance tax and stamp duty on the transfer of estates at graduated rates. These taxes were different from the 1797 tax and included a legacy or inheritance tax in addition to stamp tax on the probate of wills and letters of administration. Between 1864 and 1871, the tax revenue was nearly $14,8 million.42 At first, the U.S. inheritance tax depended only on the relations between a legatee and an heir. However, further, tax rates depended on the property value. Shortly after the Civil War, the tax and duty were repealed. it is significant that the U.S. Supreme Court in Scholey v. Rewexamined the Civil War's succession taxes and concluded that this

40

41

Gulliver v. HMRC [2017] U.K.F.T.T. 222 (TC).

See Lowenstein & Kisska-Schulze 2018, at 135.

See Jacobson et al. 2007, at 119.

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tax was "not a direct tax," but "an impost or excise" according to Article 1, section 8 of the U.S. Constitution of 1787.43

in 1916, the Federal Revenue Act was amended with estate tax considered as a tax on the transfer of wealth. This federal tax was imposed only three years later after the establishment of the current income tax system in the U.S. in 1932, Congress added a gift tax. initially, both taxes were considered as a single tax. Nowadays, they are referred to as "death tax" for short. The next amended act (The Revenue Act of 1935) introduced the optional valuation date election. in 1948, marital deductions were established. it became possible to deduct the value of property passing to a surviving spouse. in 2001, changes in the legal framework of estate tax were introduced, and one of the most significant changes was the eventual repeal of the tax in 2010. However, the U.S. government returned to the estate tax and imposed it again in 2011. Federal estate tax has been a traditional component of political programs and intentions for political elections. The current U.S. president Donald Trump promised to repeal this tax during his 2016 election campaign. instead, Congress doubled the amount of exemption. Thus, in the U.S., federal estate tax is still being imposed.

Rignano pointed out that in the U.S. and in the rest of the world, only two criteria had been applied to taxation up to the time of his study (1924), namely the size of the estate and the degree of relationship between the beneficiaries. These criteria were determined by the principle of graduation. Rignano proposed the third criterion and called it relative age. The author suggested that national legislature should consider property for tax purposes differently. if the estate is divided into different parts depending on its distinct origin, these parts should be taxed differently. Rignano wrote:

On the portion, which the decedent inherited directly from his father, the nation should make a much heavy levy, say 50 per cent. On the portion, which came to the decedent from his grandfather through the medium of his father, there would be laid a very heavy tax, possibly 100 per cent. Such a graduation of rates would obviate a classification of any estate into more than three divisions, as nothing would be capable of inheritance from beyond the third generation.44

Rignano made a poignant point at that time, characterized by the importance of such issues as social justice, resources distribution, and the decreasing rate of the rate of property differentiation in society. He was a supporter of socialist ideas. Thus, the third criterion does not apply in the market economy.

in the U.S., while the federal government has imposed only the estate tax, states have the right to impose both estate and inheritance taxes. Nowadays, six U.S. states have imposed inheritance taxes. States are free to impose estate and inheritance

43 Scholey v. Rew, 90 U.S. (23 Wall.) 331 (1875).

44 Eugenio Rignano, The Social Significance of the Inheritance Tax 22 (William J. Shultz trans., 1924).

taxes simultaneously. For instance, the New Jersey government imposed both estate and inheritance taxes between 1934 and 2018.

These two taxes are strictly different. The amount of inheritance tax depends on the following factors:

1) if a beneficiary is a close relative of a deceased or not;

2) what is the asset value at the moment of death;

3) what kind of assets should be transferred;

4) where a deceased lived (in what state).

The fact where a beneficiary lives is not important. The states' governments are empowered to impose inheritance taxes of different types and constructions. Such taxes may be territorial or residential, and such factors as where the deceased lived or where the estate was located may play a significant role.

As it was noticed before, estate tax is a tax on the right of the deceased to transfer property at his or her death. in the U.S., the estate that should be taxed may include assets of different kinds, including cash, securities, real estate, trusts, annuities, and others. All these assets are accumulated into a gross estate. After applying deductions allowed by the U.S. internal Revenue Code such as mortgages, estate administration expenses and other debts, the taxable estate should be calculated. in addition, the value of lifetime taxable gifts should be summed with the value of taxable estate, and then the tax is computed. Not all estate that is inherited at one's death should be taxed, but only the gross estate added by the value of taxable gifts that exceed $ 11,580,000 in 2020. The U.S. iRC sets forth the non-taxable minimum value of all gifts per year and several deductions concerning the gifting between spouses and charity.45 Rates of both taxes, estate and gift taxes vary from 18 to 40 per cent.

The residency criterion should be applied, i.e. property that is transferred based on inheritance or gifts should be taxed in the case if the deceased or giver is a tax resident or a U.S. citizen. Property under trusts should be taxed as well. if the deceased or gifter is not a U.S. resident or citizen, the territoriality criterion is applied, but only the property that is in the U.S. should be taxed at the time of transaction. The taxpayer is a giver, not a beneficiary as it is in Russia, where in the case if the property should be taxed, the beneficiary is a person who incurs the tax liability. This fact shows that inheritance tax or gift tax may be constructed as a pattern of property tax as in the U.S. or income tax as in Russia.

Estate tax is addressed for a ridiculously small per cent of the U.S. population. The top 10 per cent of income earners pay more than 90 per cent of the tax, with nearly 40 per cent paid by the richest 0.1 per cent. Few farms or family businesses pay the tax46. Gift tax is imposed to prevent estate tax avoidance by lifetime giving.47

45 For example, in 2020, the non-taxable minimum is $154 000.

46 Urban-Brookings Tax Policy Center. "Microsimulation Model, version 0718-1 (Oct. 18, 2020), available at http://www.taxpolicycenter.org/briefing-book/who-pays-estate-tax.

47 Brian Roach, Taxes in the United States: History, Fairness, and Current Political Issues, Global Development and Environment Institute (2010) (Oct. 18, 2020), available at https://fliphtml5.com/lriz/crta/basic.

in the U.S., estate tax has encountered wide public criticism. As consequences, its components are often revised and sometimes the tax is not imposed at all. For instance, in 2009, the non-taxable minimum was $3,500,000 and the rate was 45 per cent; in 2010, the tax did not exist; in 2011, the non-taxable minimum was $ 1 million with the rate of 55 per cent.

The general-skipping transfer tax (GSTT) is a distinct tax imposed on property transfer not through the direct heir, for example, from a grandfather to grandson including the use of trusts. This tax should be collected if neither, estate tax nor gift tax can be imposed. For instance, the property is transferred to a trust in the favour of a daughter or son, and a granddaughter or grandson simultaneously. Trust income can be allocated proportionally. in the case of the daughter or son's death, the trust property could be transferred to the ownership of the granddaughter or grandson, and is not subject to estate tax. The generation-skipping transfer tax should be imposed in such cases. in 2019, the GSTT rate is a flat of 40 per cent. The tax only applies when the transferred amount exceeds $11.4 million per individual (for 2019). GSTT, as well as gift tax aim at prevention of estate tax avoidance.

The use of gifts or trusts is not the only scheme to avoid inheritance tax. Often, individuals use another arrangement, moving to the state where inheritance or estate taxes have not been imposed. it is possible to avoid the tax because of essential tax competition between states. if one state has an income, inheritance or estate tax, another state cannot impose these taxes at all. in this case, tax authorities use the domicile criterion that is considered as"a person's fixed or permanent abode that the person intends to remain in indefinitely and to which the person intends to return." Residency is a more flexible status and may be defined depending on the abode, or number of days per a year of physical existence in the state or other life circumstances. Thus, in the case of filling of a tax return by a non-resident, tax authorities are eligible to require filling out the special form to define a person's domicile.48

in Canada, death tax was first imposed in 1892. At the end of 1971, the federal government repealed estate and gift taxes.49 Two points of view exist regarding inheritance tax in Canada. The first relates to the principle of balance of tax plurality, which was required for flexibility and equity of the tax system, and was supported by the government.

A tax system should, therefore, have a sufficient multiplicity of taxes considering these characteristics. in other words, it was suggested that once an income had been taxed, it should not be taxed a second time in the case of the legatee's death.

Another point of view is based on the American model, which sought a universal measure of ability to pay taxes. in the Carter Commission Report (1981), this system

48 Liz Opalka, Moved South but Still Taxed Up North: Migrating to a Low-Tax State to Retire Doesn't Always Allow People to Escape Estate and Inheritance Taxes in the States They Left, 8 Journal of Accountancy 58 (2015).

49 Wolfe D. Goodman, Death Taxes in Canada, in the Past and in the Possible Future, 43(5) Can. Tax. J. 1360, 1362 (1995).

was used and proposed "to treat every dollar received by a person in the same manner, whether it was received as ordinary income, capital gains, gifts, inheritances, or simply as windfalls."50 This concept was highly criticized. After the debate, the Carter Commission announced that it did not intend to include gifts and inheritance in the taxable base for income tax purposes. There was a tax imposed on gifts and death tax levied on the total value of the property. This system resembled the one adopted in the U.S.

in 1971, the death tax structure was complex: in some regions (for example, in Newfoundland or Nova Scotia), the tax was collected from estate at full rates. 75 per cent of the revenue went to provincial budgets. in 1971, the reform of tax deductions and exemptions was introduced, leading to huge revenue losses from the estate tax.

in the 1970s, almost all provincial succession acts were repealed. There were two reasons that led to this result. Firstly, there were arguments over double taxation (income tax and estate tax after death). Secondly, the Alberta province became a tax haven as the region declined to enact the uniform succession legislation.

Today, there are no death taxes in Canada. People can dispose of the whole capital property inherited on the grounds of death. The idea is that some amount of gains and losses has been already included in computing income in the year of death. Beneficiaries acquire the property at a cost equal to the legatee's income. Fair market value of the property that is registered in a retirement savings plan or a fund is fully taxable.

Germany has imposed inheritance tax similar to France and Great Britain. Such a tax was introduced in Germany in 1906. Also, in 1906, an important exemption was introduced: the property for the transfer to spouses and children was not taxable. However, the above-mentioned property started to be taxable again in 1919. Since then, the family-oriented understanding of succession provided many exemptions for family property from inheritance tax. in 2009, major amendments were made to the inheritance taxation law. Due to the German Constitutional Court rulings, tax deductions for close relatives were broadened and tax rates for distant relatives were raised. A principle of Eingeirtswerf was introduced on the basis of which real estate is assessed and this approach has not changed since 2009.52

Currently, in Germany, inheritance taxation is based on the relationship between the deceased and heir(s) and a value of the property. The revenue weight of inheritance tax in federal states' (Landers) budgets is small - only 1-3 per cent, which

Id. at 1363.

Eingeirtswert means unit value. When the expenditures or value of production of an item is divided by the quantity, the result is known as a unit value. Unit Value, OECD Statistics (Oct. 18, 2020), available at https://stats.oecd.org/glossary/detail.asp?ID=5547.

Christoph Schinke, Inheritance in Germany 1911 to 2009: A Mortality Multiplier Approach, SOEPpapers on Multidisciplinary Panel Data Research 462, DIW Berlin, The German Socio-Economic Panel (SOEP) (2012), at 13 (Oct. 18, 2020), available at https://www.diw.de/documents/publikationen/73/ diw_01.c.407138.de/diw_sp0462.pdf.

50

51

meets worldwide practices.53 The Federal inheritance and Gift Tax Act regulate the inheritance tax in Landers. The uniform law provides a legal framework for taxation under both gratuitous transfers of property at death and ordinary donation. The tax has been imposed on inherited property, a compulsory share, and compensation for abandonment of inheritance.

As for Russia, inheritance tax was already collected in the 17th century under the rule of Tsar Alexey Mikhailovich. ianzhul wrote that inheritance duties were collected before Alexey Mikhailovich in the amount of 3 kopeks per quarter of a land plot. in 1775, will duties were repealed and then, in 1801, estate duties were repealed as well.54 Estate duties (6 per cent) were collected from those who were beneficiaries under will, while not eligible to inherit under law. in tsarist Russia, inheritance tax was collected as a fee, the amount of which depended on the degree of the relationship between a legatee and heir.

in 1882, inheritance tax was imposed officially as stamp duty related to a variety of free property transfers. Berendts highlighted that it was not a fee, but a tax because it was collected without reference to public service as in the case of stamp duty.55 The author referred to this tax as property tax, or property transfer tax. Tarasov maintained the same position.56 Regarding other European continental countries where death duties were mainly enforced through stamp duties, the U.S. Supreme Court in Knowlton vs. Moore of 1900 declared:

They [stamp duties] are there, both in theory and in practice, treated as resulting from the occasion of death, and hence as not legally equivalent with taxes levied on property merely because of its ownership.57

The peculiarity of inheritance tax in Russia is the instability of its collection. The development of inheritance tax was related to the development of inheritance and gifts concepts in the Civil Law. For example, in 1918, the inheritance right in the Civil Law led to the abolishment of inheritance tax.58 However, in 1922, this tax was re-introduced. in Russian Soviet Federative Socialist Republic, this tax was collected at the local level between 1922 and 1943. in 1943, the tax was repealed. Finally, it

53 БоярскаяИ.С. Налог на наследство и дарение в Германии // Конкурентоспособность территорий: материалы XXI Всероссийского экономического форума молодых ученых и студентов: в 8 ч. Ч. 1 [I.S. Boiarskaia, Inheritance and Gift Taxes in Germany in 1 Competitiveness of the Territories: Materials of the 21st All-Russian Economic Forum of Young Scientists and Students] 84 (2018).

54 See Ianzhul 2002, at 536.

55 Berendts 2014, at 257.

56 Tarasov 2004, at 307.

57 Knowlton v. Moore, supra note 32.

58 Гензель П.П. Налоги Союза ССР [Pavel P. Genzel, Taxes of the SSSR] 96 (1926).

was re-introduced in 1992 following the Soviet collapse, and was collected until 2006.59 in the 1990s, inheritance tax fulfilled both fiscal and control roles, and was imposed as a federal tax.60 While inheritance tax was in force, the individuals who accepted property transferred to them by inheritance or donation were recognized as inheritance taxpayers. in Russia, the current and formerly applied concept of tax residency is based on the number of days during 12 months in a row, when a person lives in the country (the Thumb Test) was not used for inheritance tax purposes. Heirs were treated as taxpayers because they were Russian citizens despite their place of abode. A habitual residency or the concept of vital interests' centre was not used in Russia to consider a person as a taxpayer of inheritance tax.61

Starting in 2002, the Civil Law of the Russian Federation has imposed two types of inheritance foundations, (1) by will or (2) by law. The legatee was entitled to deprive all heirs by law of the right to inherit according to the inheritance foundation by will. The heirs by the will were not limited to relatives. Such heirs could be citizens of Russia, foreign countries, or even legal entities. Heirs by law include, first, the relatives to whom the legatee would presumably transfer the inheritance by will. All taxpayers were divided into groups, depending on the degree of relationship. The tax rate also depended on the degree of relationship. in 2004, the Constitutional Court of the Russian Federation considered the practice of collection of inheritance tax to be contrary to the "spirit and letter of the law" and considered that the tax infringed on the rights and legitimate interests of an heir.62

To date, the Tax Code of the Russian Federation states that cash or in-kind income received from individuals as inherited assets is not taxed (Art. 217, para. 18). However, the same paragraph sets an exception: the reception of remuneration paid to the authors' heirs in the form of works of science, literature, art, discoveries, inventions, and industrial designs is taxed. Moreover, if an heir inherits a land plot, building, or vehicle, he or she becomes a taxpayer of the appropriate property tax (land tax, individual property tax, or vehicle tax respectively).

Паничкин В.Б. Способы лимитирования наследства и отказ от них в российском и американском праве // Наследственное право. 2011. № 4. C. 36-39 [Vyacheslav B. Panichkin, Methods of Limiting Inheritance and Rejection of Them in Russian and American Law, 4 Inheritance Law 36 (2011)].

60 Пушкарёва В.М. Эволюция взглядов на налог с наследства и его будущее в современной России // Известия Дальневосточного федерального университета. Экономика и управление. 2018. № 2(86). C. 169-179 [Valentina М. Pushkareva, Evolution of Views on Inheritance Tax and its Future in Modern Russia, 2(86) Bulletin of the Far Eastern Federal University. Economics and Management 169 (2018)].

61 A comprehensive analysis of such parameters as location of an individual's family, the place of property management, the place of entrepreneurial activity was introduced to prove the habitual residency. The centre of vital interests can be determined by the personal and economic relations of the individual.

62 Определение Конституционного Суда Российской Федерации от 30 сентября 2004 г. № 316-О // Собрание законодательства РФ. 2004. № 46. Ст. 4570 [Ruling of the Constitutional Court of the Russian Federation of 30 September 2004 No. 316-О, Legislation Bulletin of the Russian Federation, 2004, No. 46, Art. 4570].

Concluding the historical analysis of inheritance taxation in Russia, we can state that its development followed the general trends of European countries until the Soviet period. The pre-revolutionary researchers did not point at any significant features of inheritance taxation in the Russian Empire or tsarist Russia that were drastically different from its European or North American counterpart. Meanwhile, compared to some foreign countries, for example, the U.S., inheritance tax in Russia has never been a source of extraordinary budgetary revenues. Even during the Soviet period, inheritance tax was collected, despite the government political system aimed at the abolishment of private property as a social institute. in the period from 1943 to 1992, inheritance tax was not collected because of a lack of taxable base. The transfer to a market economy in post-Soviet Russia induced the creation of a new tax system with the elements of the redistributive system such as the progressive income tax and inheritance tax. That tax system was new and far from perfect, but its development was in line with overall global experience and principles. in the beginning of the 2000s, the tax policy was changed, and all redistributive components of the tax system were eliminated, including inheritance tax. This has exacerbated the wealth differentiation in Russia.

As the historical analysis shows, European and North American countries have a deep-rooted system of inheritance taxation, demonstrating its continuous improvement over time. At the same time, some countries, e.g. Canada have recently refused to impose inheritance tax because of double taxation, low budgetary yield, and high risks of tax-avoidance considerations. Contemporary Russia has followed this trend. However, inheritance tax or a lack of it, continue to be applied as a political tool because it targets a select group of top-wealthy individuals. Currently, Russian scholars list four historical functions of inheritance tax such as (1) the strengthening of family ties; (2) a payment for the permission of inheritance; (3) a measure of nationalization; and (4) a measure of social equality.63 in different countries and in different historical periods, one of these functions becomes dominant. in the U.S., estate tax was introduced for the redistribution of wealth to decrease social tension, facilitate economic growth, and restructure federal budgetary revenues shifting the emphasis from indirect to direct taxation. in our days, all four functions might be realized by the imposition of death taxes. We argue that the first three historical functions of the tax can be seen as redundant and obsolete, but its last function is still relevant today, because the latest OECD studies show that inheritance taxation is meant to act as a fiscal tool against increasing social inequality.64

63 Пепеляев С.Г., Попов П.А., Косов А.А. и др. Налоговое право. Особенная часть [Sergey G. Pepeliaev et al., Tax Law: Special Part] 109 (2017).

64 See OECD 2018, supra note 1, at 101.

3. Advantages and Disadvantages of the Inheritance Tax

Some Russian scholars, for example, Ozerov, stated that inheritance tax is fair and can mitigate inequality.65 Someone who received the legacy has an advantage over those who did not receive it. in this case, inheritance tax provides for the application of tax fairness and the ability-to-pay principle. As Berendts remarked in 1914, inheritance and gift taxes are the fairest, convenient, and simple taxes collected without significant government spending.66

Some foreign scholars lean towards the same position. Alstott stated,"[E]quality and opportunity are widely understood as one of the bedrock principles supporting the taxation of inheritance."This author suggested an interesting approach to the design of inheritance tax following the theory of equality of opportunity. Her suggestions are opposed to traditional views on inheritance taxation. To reach the equality of opportunity or resource equality, gifts and inheritance received from close relatives should be taxed, whereas those received from peers, spouses, friends, and strangers should be exempted. Besides, inheritance tax in case of private or public inheritance is suggested to be introduced.67 We consider such an approach as a remarkably interesting and extraordinary view with the aim to reach actual social equality. However, we suppose that neither the U.S., nor the EU or Russia have the prerequisites for its implementation. Such views were widespread at the turn of the 19th and 20th centuries connected to socialist sentiments. Berendts noticed that according to socialists, only a state is eligible to inherit property. According to Berendts, this approach should be rejected. The opposite would mean the encroachment on private property and the discouraging of savings. Hence, only a reasonable progressive inheritance tax might be considered as a fair measure.68 Under the OECD study of wealth and wealth transfer taxation; there is a clear case on distributional grounds for taxing wealth transfers at death.69 However, a high risk of avoidance or evasion of wealth transfer taxes by affluent persons might diminish positive equalization effects.

Other academics argue against these ideas. McCaffery states that there is no need for a gift, inheritance, or estate tax under a consistent post-paid consumption tax. The author's arguments are related to the immoral character of inheritance tax, high costs of collection instead of high budgetary revenues, and a high risk of tax-avoidance.70 The same factors induced the repeal of wealth taxes in the EU countries

65 See Ozerov 1909, at 507.

66 See Berendts 2014, at 257.

67 Anne L. Alstott, Equal Opportunity and Inheritance Taxation, 121(2) Harv. L. Rev. 470 (2007).

68 Berendts 2014, at 258.

69 See OECD 2018, supra note 1, at 53.

70 Edward J. McCaffery, Fair Not Flat: How to Make the Tax System Better and Simpler 63-69 (2002).

in the 1990s. in 2017, France, Norway, Spain, and Switzerland were the only OECD countries levying net wealth taxes.71

The advantages of inheritance taxation can bring income to the budget. in Russia of the 1990s, the tax played a significant role because of the federal budget deficit (in 1994, the tax reached 10.5 per cent of GDP).72 Meanwhile, foreign experience shows that both estate and inheritance taxes have a narrow taxable base addressing a tiny per cent of the population on the top of national wealth. Thus, potential budget revenues from inheritance taxation are deemed as non-significant (for instance, in the U.S., federal revenues from estate tax constitute approximately 1 per cent). However, this fact should not be considered as substantial in tax design. The main function of inheritance taxation is not fiscal, but a distributive function aimed at alleviation of property and the increase of social equalization, i.e. the creation of socio-economic conditions for the equality of opportunities. in Canada, which is the only G7 country without inheritance, gift or estate taxes, the question about the need of introduction of inheritance tax was raised in the report for Police Alternatives in 2018. One of the arguments was that Canada could reduce its wealth inequality by introducing this tax.

Moreover, inheritance tax performs the control function since the taxation of inheritance can reveal the legatee's income hidden from taxation. However, inheritance tax can be avoided or evaded with a high probability because affluent persons who are engaged in tax planning aimed at tax avoidance or evasion must pay this tax. Among various ways to avoid taxes, there might be (1) the creation of difficulties to evaluate assets and define a tax base by tax authorities through the purchase of items hard to disclose and report, for example, artworks and jewellery; (2) the transfer of assets to corporations; (3) the transfer of assets through lifetime gifts or trusts; (4) the diversification of assets to avoid taxation through tax caps; (5) hiding assets abroad. Thus, the control function of inheritance taxation might be challenging to perform.

in fact, there are widespread schemes to circumvent the tax. A good example would be the accumulation of property in the form of foreign currency because cash can be concealed during the process of inheritance. To exclude such circumventions, sustained modification of the inheritance tax mechanism should be provided considering newly discovered tax avoidance schemes. Considering potential yields from inheritance tax, the administration of such a tax might be too expensive for any government. This fact might diminish positive influence of inheritance taxation.

Despite the explicit advantages of inheritance taxation concerning its social effects, there are clear-cut disadvantages urging governments to repeal inheritance taxes or substitute them with other taxes. The primary disadvantage of inheritance tax is the double taxation of property. Foreign experience shows that a taxpayer is liable to be taxed twice on the same object, i.e. the generation of income can lead to

71 See OECD 2018, supra note 1, at 16.

72 See Pushkareva 2018, at 176.

income, consumption, and inheritance taxes. Meanwhile, double taxation does not always have a negative effect. income gained by individuals is taxed with income tax at first, and then consumption taxes. Luxury goods produced inside a country are taxed with VAT (almost all OECD countries except for the U.S. have levied VAT) and excises simultaneously, and luxury goods produced outside of a country, or imported goods are taxed with customs duties in addition.

Another disadvantage of inheritance tax is its onerous character. in the U.S., inheritance tax is deemed as a "destructive" tax for small businesses as evidenced by surveys among residents, which indicate that more than half of family businesses face serious difficulties if one owner dies.

4. Considering Russian Tax System from the Inheritance Taxation Viewpoint

Considering history, foreign practices, and the current understanding of inheritance taxation including its functions, advantages, and disadvantages, we argue that the lack of inheritance tax in Russian tax system points at a non-progressive character of taxation in Russia. inheritance taxation should fulfil only the distributive role in the economy diminishing social inequality. A low yield of such a tax does not demonstrate its inefficiency. inheritance taxation cannot abolish social inequality unilaterally, although it can contribute to the equality of opportunities.

Overall, the balance between three functions of taxes should determine fiscal policy among other directions of governmental policies. Following Musgrave's three functions of public finance, taxation, as a mandatory removal of a share of private property in favour of public welfare, performs three functions (1) fiscal, or the accumulation of public revenues; (2) regulatory function, or the regulation of the economy and economic behaviour; (3) the distribution of property inside society aimed at social equality and justice.73 Every tax should realize all three functions simultaneously, and inheritance tax paid by a donee performs distributive, fiscal, and regulatory functions. if the application of the distributive function is explicit from a theoretical viewpoint and criticized from the practical viewpoint because of high opportunity to evade the tax, then the application of fiscal and regulation functions might be debatable depending upon the context. However, these functions are also mostly fulfilled. Foreign practices show that a yield of inheritance or estate taxes does not exceed 1 per cent of national revenues. Meanwhile, in the case of abolishing the tax, these revenues should be substituted by other tax revenues. in this case, it is highly likely that an individual income tax rate will be increased. it means that lifetime income gained by a person will be taxed instead of assets received by his or her descendants. Concerning the double taxation of inheritance tax versus income

73 Richard A. Musgrave, Public Finance and Three Branch Models, 32(4) J. Econ. Finance 334 (2008).

tax, it does not occur if the government levies the inheritance tax addressing heirs, and not donors in the case of estate tax. Here, the tax-shifting phenomenon actually works. if the donor should pay the income tax, then the inheritance tax should be paid by the donee. Thus, these arguments against the inheritance tax should not be considered. Concerning the regulatory function, inheritance tax significantly affects economic environment. On the one hand, this effect might be negative, expressed in hiding capital abroad using tax havens and other methods of tax avoidance or evasion discouraging residents from savings. These phenomena distort economic conditions and lead to undesirable effects. On the other hand, inheritance tax facilitates the equality of opportunities positively impacting not only social differentiation by diminishing it, but also economic growth by the distribution of assets between different social groups and reducing the concentration of wealth within a narrow social group of extremely rich. Thus, considering the issues of inheritance tax design in an appropriate way, we think that inheritance tax performs all three functions properly. The introduction of inheritance tax into the tax system can allow for reaching the due balance between all three functions for the whole system.

This tax might be perceived as unfair because assets should remain in a family and, even though the owner was superseded, the value of assets remains the same and income has not been gained. The institute of private ownership and inheritance guaranteed by Russia's Constitution stipulates such views. Following the opinion of Russia's Constitutional Court, inheritance taxation should follow this principle.74 For instance, such a viewpoint induced the Canadian government to repeal inheritance tax. We need to consider two factors in this regard. First, a new individual has appeared: it has not been the same taxpayer who already paid all his or her taxes related to the assets, but the new taxpayer. Thus, for an heir, the property is deemed as income, which increases his or her own economic opportunities. Second, property value must be considered. inheritance tax should be designed to improve the wealth allocation in society. Thus, this tax should be levied only on high property value touching only the narrowest, top affluent group of people.

Concerning the introduction of inheritance tax in Russia, another problem related to inheritance tax might arise. inheritance tax, in general, is levied on the whole property, disregarding its categorization. in fact, inheritance tax is designed according to global approach. The assets that are the object of succession might include cash, bonds with potential income, real estate that might be a source of income, and other property. These assets might be related not only to non-profit or ordinary human activities, but also commercial activities. inheritance tax levied on entrepreneurship or farmer property could negatively affect the Russian economy, harming small and medium businesses. if the inheritance tax construction is

74 Ruling of the Constitutional Court of the Russian Federation of 30 September 2004 No. 316-0, supra note 62.

based on schedules, it could increase the risk of tax avoidance because of possible manipulation of property. it is a difficult task that should be resolved in the case of the inheritance tax introduction in Russia.

Potential inheritance tax might affect non-affluent people who inherit expensive real estate. Such a case could include regions such as Moscow or Saint Petersburg where the market value of real estate is high. in this case, tax authorities must examine all life circumstances such as living in the inherited real estate before the death of a legatee, or a lack of another estate. The design and collection of inheritance tax should be comprehensive because these life circumstances, especially the actual affluence of a taxpayer or his or her ability to pay, require rigorous analysis, which complicates the whole process of tax collection and makes it expensive.

The next question is what level of government should impose inheritance tax, i.e. federal, regional, or local. The OECD has classified estate, inheritance, and gift taxes as taxes on property.75 in general, regional or local governments impose taxes on property, while national governments impose income taxes, taxes on goods and services, social insurance contributions, and royalties. it depends on the character of the tax base related to a certain tax. in Russia, taxes on property include taxes on corporate property, vehicle tax, land tax, and the tax on individual property. The first two taxes have been imposed at the regional level, while the last two at the local. Stable taxable bases intricately connected with regional or local governments characterize these taxes. Taxes on property explicitly reflect the current understanding of a tax as payment for public goods. For instance, public goods in the form of public roads are the regional governments' responsibility, compensated by vehicle taxes. Concerning death taxes, taxation practices are different and, as the analyses of foreign experience show, they may be imposed both at national and regional levels. Considering the main goal of potential imposition of inheritance tax in Russia, the tax should be imposed only on the federal level. Due to potential and actual concentration of wealth in certain regions, a federative authority over the tax introduction and implementation is necessary for the allocation of wealth within the whole society.

Conclusion

inheritance taxation has historical roots and has assumed different forms. it can be represented by inheritance, estate, succession taxes, stamp duty or gains transfer tax. Estate and inheritance taxes are the most widespread in the modern world. inheritance tax is levied only on the inherited share, while estate tax is levied on the whole property. There is a tendency to impose inheritance tax rather than estate tax in the OECD countries. in addition, gift and sometimes general-skipping transfer taxes may be imposed to decrease a risk of tax avoidance.

75 See OECD 2018, supra note 1, at 3.

The historical analysis has shown that inheritance tax was collected in Russia in the past, and, as Russian scholars have concluded, provided substantial yields for federal budget in the 90s. Today, in the Russian Federation, stamp duty has been imposed consisting of two parts where the first depends on the value of the property and the second on degree of kinship.

As can be seen from the comparative study, wealth transfer taxes have been established in most developed countries. While the recent OECD studies point to the importance of including wealth or wealth transfer taxes into tax system with the aim to eliminate or mitigate social inequality, the current Russian tax system does not have any wealth or wealth transfer taxes. in contemporary Russia, a narrow group of affluent people controls the concentration of wealth. The lack of basic components of progressive tax system compounds this problem. This situation points to the unfair character of the current taxation system in Russia and noncompliance with the principle of proportionality or ability-to-pay requirement.

inheritance tax aiming at alleviating wealth inequality should be socially oriented and levied on only top-wealthy people. The issues of inheritance tax avoidance or evasion should be resolved based on the best practices of developed countries, following the OECD recommendations.

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Information about the authors

Elena Ryabova (Moscow, Russia) - Associate Professor, Higher School of State Audit (Faculty), Lomonosov Moscow State University (1, Bldg. 13-14 Leninskiye Gory, Moscow, 119991, Russia; e-mail: lentaf@mail.ru).

Evgeniya Ivanushchenko (Moscow, Russia) - Student, National Research University Higher School of Economics (3 Bolshoy Trekhsvyatitelskiy pereulok, Moscow, 109028, Russia; e-mail: epivanuschenko@edu.hse.ru).

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