Tax evasion
Tax evasion is the illegal non-payment or underpayment of taxes by individuals or businesses. It occurs when a person or business deliberately avoids paying the taxes that they owe by failing to report income, claiming false deductions, or using other illegal methods. Tax evasion is a criminal offense and can result in fines, penalties, and even imprisonment.
Tax avoidance is an illegal practice opposing a tax law. Its is defined as a crime and as a result it is punishable in accordance with the law of the given country. Tax avoidance can be described as lying on tax returns, giving false evidences, and concealing tax information or addresses.
Forms
Tax evasion can take many forms, such as:
- Underreporting income: This occurs when a person or business underreports their income, by failing to report all of their income on their tax return.
- Claiming false deductions: This occurs when a person or business claims deductions or credits on their tax return that they are not entitled to.
- Failing to file a tax return: This occurs when a person or business fails to file a tax return when they are required to do so.
- Hiding assets: This occurs when a person or business hides assets in order to avoid paying taxes on them.
- Using tax havens: This occurs when a person or business uses offshore bank accounts or other tax havens to avoid paying taxes.
- Creating fake invoices: This occurs when a business creates fake invoices to reduce the amount of taxes they owe.
- Misclassifying employees as independent contractors: This occurs when a business misclassifies employees as independent contractors to reduce the amount of taxes they owe.
- Participating in illegal schemes: This occurs when a person or business participates in illegal tax avoidance schemes or frauds, such as tax shelters or Ponzi schemes.
It's important to note that not reporting all of the income or claiming deductions that you're entitled to, while not being illegal, is considered to be a civil matter and can result in penalties and interest charges.
Causes
- decrease of the tax receipt, which can result in the increase of taxes and therefore in an additional tax on the honest taxpayers,
- economic distortion * taxpayers by not paying their taxes can increase their economic position contrary to those taxpayers who conduct their business lawfully,
- distorting the harmonious taxation * tax structure deviates from the plan of taxation when some taxpayers pay their taxes while others fail to pay theirs,
- demoralising influence on other taxpayers.
Reasons
- moral * tax payers view country as an oppressor who enforces duties of the citizens,
- economic * taxpayers decide whether the benefits from the tax fraud will outweigh possible punishment for the tax avoidance,
- political * tax avoidance is viewed as one of the ways of opposing state powers.
| Tax evasion — recommended articles |
| Thin capitalization — Illegal work — Net gain — Informal economy — Taxation principles — Dishonored check — Consumer loan — Accounting fraud — Bad debt recovery |
References
- Shackelford, D. A. (2001). Taxes and Business Strategy: A Planning Approach. Journal of the American Taxation Association, 23(2), 80-80.
Author: Andrzej Kowal
