Tax Avoidance

“The Wikipedia of Law”

Tax Avoidance

Tax Avoidance Definition

Tax avoidance may be defined as the act of reducing taxation, it is about getting round the law to minimice a tax impact of any operation. Through tax avoidance, a taxpayer takes advantage of all legal opportunities to reduce his or her tax liability.

An Australian Judge with significant experience of working with Australia’s taxation, Justice G Tony Pagone, in “Aspects of Tax Avoidance: Trans-Tasman Observations” (paper presented to International Fiscal Association Conference, Wellington, March 2011), has stated:

“It is a legislative feature of the anti avoidance provisions both in Australia and in New Zealand that tax is imposed through the anti avoidance provisions where tax would not otherwise be payable. The anti avoidance provisions themselves impose tax and not merely operate to make the other provisions operate. The anti avoidance provisions of Part IVA in Australia only apply where the tax benefits the Commissioner cancels are otherwise lawfully available to the taxpayer. The same effect was achieved by its predecessor provision in s 260, and is achieved in double measure through ss BG and GA of the New Zealand Income Tax Act 2007. In each case, tax is imposed through, or by application of, the anti avoidance provisions where tax is not otherwise imposed. The fundamental criteria chosen for this imposition is the successful purpose of avoidance. It must seem very curious to most normal people that tax would be imposed when it is lawfully not payable according to the provisions said to have been avoided, and that the very criteria of imposition could somehow be the success of its avoidance.”

Tax Evasion and Tax Avoidance

Tax avoidance is different from Tax Evasion. In many countries, tax avoidance is not a criminal offence. It does not turn on misrepresentations being made to the tax authorities; on the contrary, taxpayers accused of tax avoidance have commonly disclosed to the tax authorities far more information about their affairs than they are required to by law.

But, critically, the legal standard for determining what is and what is not tax avoidance is far from certain.
Therefore, a conclusion that a taxpayer’s conduct amounts to tax avoidance may, in some countries, nonetheless be reached even in a case where the taxpayer:
(a) has calculated the correct amount of tax payable according to the detailed provisions of the tax legislation, usually on the basis of professional advice;
(b) has paid the tax, as calculated, by the due date;
(c) has provided Inland Revenue with accurate information in the form requested by Inland Revenue;
(d) has on any objective view acted honestly and carefully in seeking to comply with the person’s tax obligations;
(e) is nonetheless alleged to have paid too little tax because the form in which the person has organised his or her business or other affairs, or undertaken a particular transaction, is said to amount to tax avoidance.

Tax Avoidance in New Zealand

The legal definition of “tax avoidance arrangement” is as follows:
Tax avoidance arrangement means an arrangement, whether entered into by the person affected by the arrangement or by another person, that directly or indirectly—
(a) has tax avoidance as its purpose or effect; or
(b) has tax avoidance as 1 of its purposes or effects, whether or not any other purpose or effect is referable to ordinary business or family dealings, if the tax avoidance purpose or effect is not merely incidental.

In New Zealand. “tax avoidance” is defined as including:
(a) directly or indirectly altering the incidence of any income tax;
(b) directly or indirectly relieving a person from liability to pay income tax or from a potential or prospective liability to future income tax;
(c) directly or indirectly avoiding, postponing, or reducing any liability to income tax or any potential or prospective liability to future income tax.

Some texts are extracted from “Improving the Operation of New Zealand´s Tax Avoidance Laws”

See Also

Tax Evasion
General Anti Avoidance Rule
Penny and Hooper case
Tax Avoidance
Trust Taxation
Rule of Law
General Agreement on Tariffs and Trade
What is a Section 645 election?
Charity Trusts
Mandatory or Binding vs. Persuasive Authority
Law binding
List of Tax Acronyms and Abbreviations
Trust Registration

Further Reading

Harry Ebersohn “Tax Avoidance and the Rule of Law” (paper presented to Legal Research Foundation Tax Avoidance Symposium, Auckland, April 2011).

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