Designing Net Wealth Taxes – Challenges in Valuing Shares in Unlisted Companies

This article investigates challenges of valuing unlisted shares for wealth tax purposes in light of the legal principle of equality. Using a dataset of Norwegian companies sold between 2018 and 2021, the authors assess the accuracy of valuation methods used in Norway, Denmark, and Switzerland by comparing estimated values with sales prices. None of the methods reliably reflect market values, though their shortcomings differ. The Norwegian method, based solely on net asset value, leads to widespread undervaluation. The Danish and Swiss methods attempt to capture goodwill by incorporating historical earnings, resulting in fewer undervaluations but more overvaluation. In countries with constitutional equality principles, such disparities may pose challenges if a wealth tax is introduced. While the Norwegian method may be more defensible in some respects, its failure to account for goodwill remains a key weakness. We consider whether a refined version of the Danish model, with certain adjustments, could offer a more balanced alternative, while acknowledging administrative complexity. Ultimately, the findings underscore the need to address valuation issues if a wealth tax, especially a global one, is to be legally defensible.