Difference between tax evasion and tax avoidance
When discussing tax strategies to pay less taxes, we must draw a clear line between tax evasion and tax avoidance. Tax avoidance is a legal concept that involves tax payers using legal strategies to avoid paying taxes.
Thus, tax avoidance is based on the interpretation of tax laws and its omissions. With the help of an accountant or lawyer, the person or company will benefit from the tax laws of their country to reduce tax charges from taking advantage of ambiguities in the legal texts that allow different interpretations or create conflict with other existing regulations.
Unlike tax avoidance, tax evasion involves tax payers using illegal strategies to avoid paying taxes. This can be done by not filing a tax return or when information on business operations is changed in order to get a smaller tax base. This is considered fraud and, as such, is punishable by law. The taxed activity is hidden to the tax authorities by illegal methods such as hiding income, illicit increase of deductible expenses and acquisition of unwarranted subsidies.
This difference between tax avoidance and evasion can be clearly seen in the submission of tax returns filed to competent state agencies. In case of tax evasion, the return will show an annual income statement lower than that actually obtained by commercial operations. Unlike tax evasion, when incurring in tax avoidance, all earned income is declared but this tax base is balanced with tax credits and deductions.
To explore in more depth the differences between tax evasion and tax avoidance, Delvalle & Delvalle legal services suggests making an appointment with your lawyer and accountant so they can advise you on the tax laws in force in the country where your company conducts its business in order to function in the context of law.
To discuss your case in detail, make an appointment with our lawyers.