Published On: Fri, Apr 8th, 2016

Tax evasion versus tax avoidance

Jacob Gelt DekkerThe Panama Papers, a wiki-leak of millions of confidential data, illegally siphoned off from a large Panama law firm, were used to demonize all those that have off-shore accounts in tax havens. Especially politicians are put on the sizzling grill of morality. The media implication is an illegal evasion of taxes by individuals, corporations, and trusts.
Tax evasion is illegal and “entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts earned, or overstating deductions.
In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden."
The off-shore trust businesses, like in Aruba, Anguilla, BVI, Channel Islands, Costa Rica, Curacao, Cyprus, Hong Kong, Ireland, Luxemburg, Lichtenstein, Malta, Panama, Swiss, The Netherlands, United Kingdom, Vatican, etc. are all perfectly legal.
Undoubtedly, the shadow economy of crime is also using the created off-shore avenues, like all other options.
Most of the off-shore is a product of antiquated tax laws, lack of international tax treaties and harmonization of taxes and duties by International Trade Agreements. Shortsightedness and parochialism of politicians, administrators and lawmakers are far more to blame for the shortfall of fiscal income than the professionals who responded with international tax structuring of tax avoidance.
In 2002, Michael Wenzel pointed out the moral dilemma in his publication "The Impact of Outcome Orientation and Justice Concerns on Tax Compliance"( Journal of Applied Psychology: 4–5.).
“When taxpayers try to find loopholes with the intention to pay less tax, even if technically legal, their actions may be against the spirit of the law and in this sense considered noncompliant. Both tax evasion and avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system, although such classification of tax avoidance is not indisputable, given that avoidance is lawful, within self-creating systems."
Last week, in a Dutch referendum, the public voted overwhelmingly against a Trade Agreement between the EU and Ukraine. In fact, the public voted against harmonization of duties and taxes, while at the same time demonizing Ukraine’s president, Petro Poroshenko, for routing his export business through off-shores in Panama. To avoid double taxation, also, Dutch companies doing export business to Ukraine, are left with no other options than to route their trade through off-shores.
Since most people do not seem to know the difference between tax evasion and avoidance, the voters were taken advantage of by political fanatics who whipped up a rage by demonizing the off-shore business. Tax structuring is an extensive honorable profession and business of many highly respected accountancy and legal firms around the world.
To blame for deficiencies in international tax laws are nationalistic politicians and incompetent lawmakers.

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