Tax avoidance/evasion

From ArticleWorld

Tax avoidance may be loosely defined as the reduction of tax liability by using lawful methods that are set up by the taxation system of the respective country. As an example it may pointed out in the U.S. Many people in the high-level income category avoid paying considerable federal income taxes by purchasing and holding municipal bonds. It may be also described as the legal way in which the local tax regime is utilised to one's own advantage with the aim of reducing the amount of tax that is payable by the individual or company while remaining within the confines of the law. Some of the common examples of tax avoidance are using tax deductions, changing one's tax status by adopting incorporation and/or changing citizenship, establishment of offshore company, overseas trust or foundation in tax havens. Many countries have different rules regarding tax avoidance. The United States has a General Anti-Avoidance Rule. In other countries like U.K. In the absence of avoidance, rules there are certain provisions of tax legislations known as "anti-avoidance" provisions. These provisions are related to preventing tax avoidance. Under these provisions, transactions whose sole function is to enable tax advantages to be obtained are avoided to prevent tax avoidance. In many instance it was found that many corporate and individuals were using tax avoidance techniques for carrying out tax evasion. Increasingly many governments are looking closely at ways designed to detect the usage of tax avoidance techniques for carrying out tax evasion. The steps adopted in this direction include legislation to avoid procedures that serve the sole function of generating tax exemption and detecting manipulation of tax avoidance for evasive purposes. In 2004 certain tax avoidance schemes came under legal scrutiny for alleged tax evasion and was required to disclose their operational details to the Inland Revenue Service to check for instances of tax evasion. In U.K., the authorities use the term tax mitigation to refer to same term. According to them, it consists of acceptable tax planning, minimising tax liabilities in ways that are expressly stated in the English legal system. At the same time, it may be said that tax avoidance mocks the spirit of the law while following the letter and is therefore thought to be unacceptable by a few sections though not exactly in a criminal way like tax evasion. There are several difference of opinion between people regarding the difference between mitigation and avoidance because it relies on the reading or interpretation of the law and people disagree as to the extent to which tax avoidance is permissible. A known case in this instance was when the UK court took up the case of Cheney v. Conn in 1968, where an individual objected to paying tax on the ground that it would in part be used to procure nuclear arms in violation of the Geneva Convention. The court dismissed his claim because taxation was itself not unlawful and that it was the "the highest form of law that is known to this country”. However, it is also to be noted that certain tax resistors suggest that they have found new interpretations of the law, which suggest that they are not subject to being taxed. These arguments have been known to be to rejected by the courts of law in various countries. The U.S. tax evasion statute states that any person who knowingly attempts in any manner to evade or defeat any tax imposed by the government would be guilty of a felony and upon conviction be fined penalties provided by law. Under this law, any citizen with intent to violate an actual legal duty, an unpaid tax liability, and an affirmative act in any manner constituting evasion can be charged with tax evasion.