Regardless of who you are, a private taxpayer, or a corporate person, most likely, you have thought about the possibilities of reducing your tax burden at least once. What is tax evasion, tax planning, and tax avoidance – in order to understand that issue, we take a look at the difference between them, and also we consider some examples and facts of applying certain practices as well as things that are considered as tax fraud.
What are tax avoidance and tax evasion and how do they differ from each other?
What is the meaning of tax evasion? According to the generally accepted concept of tax evasion, it is a direct violation of the law. The laws of any country have clear rules and regulations regarding taxation, and if any individual or corporate legal entity consciously violates these rules, for example, submits false data to the tax authorities, does not declare some operations, practices VAT tax evasion or, in any other way, violates these rules, this is considered as the tax evasion.
The history of tax evasion is almost as long as the history of taxation itself since the desire of people to avoid tax burden and keep as much money as possible was strong in all times. Therefore, the authorities of any country keep seeking to solve this problem and to prevent tax evasion and control monetary receipts into the budget. In any country of the world, tax evasion is considered the criminal offense and you can you be jailed for it. And how not to commit such offense? Avoid tax evasion by all means.
Now it is the time to explain tax planning. The objectives of tax planning activities is to choose the safe and legal strategy for corporate entities. According to the core definition, tax planning involves the use of all possible legal options to minimize tax payments. This includes the use of international treaties for the avoidance of double taxation and other solutions. The importance for tax planning is growing every year because company owners are looking for smart opportunities to reduce their financial burden legally.
It is important to remember that tax optimization in the era of the global fight against tax evasion is a particularly delicate and complex process. The use of any illegal or semi-illegal strategies can lead to problems sooner or later, especially when it comes to large amount of money.
The lack of clear boundaries between tax avoidance (tax planning) and tax evasion has led to the fact that these concepts are not always used correctly. But you have to understand that tax planning is a legal process, and tax evasion can lead to liability, including criminal liability.
The legality and rightness of tax reduction
Is it legal to use certain corporate solution to reduce taxation? Yes, it is - under the condition you make it within the applicable regulations. For example, if you move to the UAE and register a company in one of the UAE free trade zones and pay a corporate tax of 0%. However such UAE company and its shareholders and directors shall meet the applicable legal requirements of the UK as well.
The problem is that large countries and economic unions actively combat tax optimization and are not interested in such schemes to be implemented. To save on taxes and not break the rules, you can apply tax avoidance techniques. Here are the main principles of this process:
- The business operates strictly within the framework of the legislation of its country (that is, all possible actions are not in the category of prohibited;
- The business operates under international law (the same as within the country);
- Any actions on tax planning does not cause harm to third parties (they also do not go beyond the boundaries);
- All actions are transparent and understandable to controlling bodies.
We cannot say that using these tax planning principles, you will guarantee yourself from any conflicts, but at least tax authorities you will not feel suspicious about you.
Optimizing your taxes with the use of available opportunities, it is important to be fully aware of all the legalities and check the regulations of the UAE as well as of your home country.