Tax Avoidance

860 Words4 Pages

The present study aims at developing a deeper understanding of the problem of tax evasion and avoidance in developing countries. Against the background of growing interest by international development cooperation, governments of developing and developed countries and international institutions in this topic, this study shall contribute to the systematization of knowledge. It becomes apparent that although there is a theoretical basis explaining tax evasion and tax avoidance behavior, we know little about the patterns and the extent of tax evasion and avoidance in the regions of the world and the different techniques used to evade and avoid paying taxes in individual developing countries. 2. What is the issue? The issue of tax evasion and …show more content…

engage in activities that are legal but run counter to the pur pose of the tax law. Usually, tax avoidance encompasses special activities with the sole purpose to reduce tax liabilities. An example for tax avoidance is strategic tax planning where financial affairs are arranged such in order to minimize tax liabilities by e.g. using tax deductions and taking advantage of tax credits. The taxpayer is not obliged to follow the spirit or the underlying purpose of the tax code but only the letter of the law. Yet in practice, this boundary often is less than clear. Sometimes, the loopholes which are explored via tax planning4 are clear and unambiguous. Often, they are not. Hence, tax avoidance often takes place at the margins of the tax code, in areas where the code is ambi - guous and in need of interpretation. In areas where the tax administration decides with a certain degree of discretionary authority, the distinction between avoidance and evasion is blurred. This becomes even more relevant if countries change the tax regulations concerning tax loopholes retroactively. In many instances, the distinction between tax avoidance and tax evasion is clear only from the ex post perspective, ultimately a post-court perspective.5 For this reason, tax evasion and tax avoidance are usually treated jointly, despite …show more content…

Tax evasion is a universal phenomenon and it entails many negative consequences such as inter alia reduced budget revenues, infringed principles of fair taxation, unequal competition conditions, limited access to justice, increased crime and the like. On the other hand, despite such negative assessment of the phenomenon, it must be noted that tax evasion is often a reaction to the actions of the state that imposes excessive taxes, or creates a taxation system that generates additional costs which burden the taxpayers. The problem is far reaching and its extent is reflected in international statistics showing the scale of shadow economy in individual countries all over the world. This phenomenon cannot be neglected despite the fact that shadow economy has been recently on the decline in many west European

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