Tax avoidance is a legal method of taxable person or taxable entity who with accordance with the law avoids declining real incomes and takes advantage of legal voids in tax legislation. With the help of experienced accountants, lawyers and various advisors multinational corporations are taking advantage of legal voids with purpose of business optimization in order to pay as little tax as possible. Some of the methods used by the corporations have already been declared faulty or in conflict with legislation of respected member states by the European commission. It leans on the GAAR clause which has been developed with case-law practice from the European court of justice. On the other hand tax evasion is an unlawful act by the taxable entity, because of the actions he or it undertakes in order to pay as little tax as possible with either hiding its income or information, which are needed for proper taxation. When it comes to tax evasion participants are usually states which do not cooperate with other countries tax administrations with the exchange of information regarding the ownerships of the business or the account holders. Surprisingly, such practice is indirectly allowed and encouraged by some of the most developed countries in the world.
Tax avoidance and tax evasions worldwide cause a lot of material damages to the respected tax administrations, hence the initiative of several international organizations and the Council of Europe is to adopt the legislation in such a manner to reduce or stop tax avoidance and tax evasions.
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