Tax+avoidance

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=1. Definition = There is no clear stated definition of tax avoidance but the term tax avoidance generally describes the actions of a tax-payer to reduce a tax-burden without constituting a criminal offence. The tax-payer’s behavior is seen as legal, since countries typically acknowledge the right of a tax-payer to arrange his affairs in such a way to pay less tax (in contrast to tax evasion which describes illegal actions to reduce tax payments).

In the OECD report on International Tax Avoidance and Evasion, it is said that governments are concerned about tax avoidance because such actions are contrary to fiscal equity, have serious budgetary effects and distort international competition and capital flows. Tax planning on the other hand is a possible way to reduce or remove tax liability. Consequently, tax avoidance involves only those forms of tax minimization which are unacceptable to governments.

To prohibit tax avoidance, some countries introduced general anti-avoidance rules.

=2. Elements of Tax Avoidance = In order to be able to combat tax avoidance the OECD governments decided in 1987 on the following elements to recognize tax avoidance:

 1. The various arrangements in a scheme do not have business or economic aims as their primary purpose  2. Secrecy  3. Taking advantage of loopholes in the law/applying legal provisions for purposes for which they were not intended  4. The obtaining of a tax benefit is the main benefit from the transaction

=3. Multinational Firm Tax Avoidance = Multinational firms are affected by governments’ decisions about corporate taxation in terms of the location of economic activity and the booking of profits. In the same way, multinational firms also affect the governments regarding the revenue they receive and the type of tax policies that is chosen. Multinational firms have both financial and real responses to the taxation of corporate income. Financial responses comprise e.g. to shift income to low tax countries, whereas real responses refer to the location of assets, employment and economic activity in low tax countries.

=4. Tax Avoidance and CSR =  The payment of taxes means an important corporate financial contribution, affecting the life of multiple citizens. A lot of social payments are only possible to be made by taxes.

 Usually, companies are expressing their ethical and responsible conduct with regard to the social environment but there are a lot of cases in which the actual practices were not aligned to the declared behavior.

 Two different cultures have been developed by the corporations: on the one hand the companies are promising ethical conduct but on the other hand they are using practices to improve profit by avoiding taxes.