Tax Avoidance, Tax Planning or Tax Evasion? Know how to Protect Your Wealth.
“International Tax Planning” or “Tax Avoidance” is International Tax terms which are normally used by international companies or highly wealthy individuals entering or arranging their business affairs so that their taxesshall be as low as possible.
In many instances, it means a dollar of lost tax revenue through Tax Avoidance or International Tax planning has the same effect as a dollar of lost tax revenue through “Tax Evasion”
The result is the same from a financial point of view to the tax payer but there is a significant difference between the two methods: Tax Evasion is illegal whereas tax planning or avoidance is legal. In most cases, it is not so difficult to define “Tax Evasion”, it is widely known as “Taxpayer avoids the payment of tax without avoiding the tax liability, so that he escapes the payment of tax that is unquestionably due accordingly to the law of the taxing jurisdiction and even breaks the law.
However to distinguish between “Tax avoidance” and “Tax planning” proves to be more difficult where the latter also known as “Acceptable Tax Avoidance”. Although many OECD reports do not specifically define these terms. It mentioned that “Tax Avoidance (…) is of concern to governments because such practices are contrary to fiscal equity, having serious budgetary effects and distort international competition and capital flows.”
OECD also reports many OECD governments wish to combat against a range of “Tax avoidance” that has the following three elements in it:
1) Almost invariably present an element of artificiality to it or, to put this way, the various arrangements in a scheme do not have business or economic aims as their primary purpose;
2) Secrecy may also be a feature of modern avoidance; and
3) Tax avoidance often takes advantages of loopholes in the law or of applying legal provisions, for purposes for which they were not intended.
As such it is important to define the terms to avoid falling into OECD government of undesirable tax planning or avoidance. An acceptable definition of these two terms is where the taxpayer reducing or removing tax liability by choosing the tax reliefs and incentives that are most advantageous at yet most consistent with normal business transactions.
Why does it mean to your company in a new business environment or country?
All International Tax Planning, Avoidance and Evasion resulted in the same effect meaning that it is lost tax revenue to the local tax authority which is generally counteracted with legislative or judicial provisions. It is advisable to engage a professional Certified Public Accountants (CPA) to help your company in a new business environment to analyze the difference between tax planning, avoidance and evasion to avoid direct violation of tax provision. Source: International Tax Avoidance and Evasion – Four Related Studies, OECD Paris, 1987 Para 10, 11
Paul Hype Page & Co. is an ACRA-certified business adviser. Our team of seasoned professional can help you set up a company in Singapore very quickly and easily following all legal entities, and offer you sound advice on how to make it successful too.
By Eric Eio
Managing Partner of Paul Hype Page & Co.
Eric was awarded an ACCA graduate in 2000 and also graduated from University of Sydney with a Bachelor degree in Computer Science & Accounting. Since graduation, he had worked in Big 4 as an auditor , including a one year overseas stint with Ernst & Young, Shanghai in 2005. He left his last appointment as an Audit Managerial position with PricewaterhouseCoopers, Singapore in 2008 before setting up his own Certified Public Accountant Practice– Paul Hype Page & Co. His firm is being selected to be one of the advisory panel for Singapore top 500 SME.