Understanding Tax Avoidance and Tax Evasion: Key Differences and Measures

Running head: TAX AVOIDANCE AND TAX EVASION
Tax Avoidance and Tax Evasion
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1TAX AVOIDANCE AND TAX EVASION
Table of Contents
Part A:......................................................................................................................... 2
Difference between tax evasion and tax avoidance:...............................................2
Critical discussion and evaluation of two different measures that is used by
multinationals for avoiding or minimizing taxes:......................................................3
Measures taken by UK government and OECD:.....................................................6
Part B:....................................................................................................................... 10
References:...............................................................................................................14

2TAX AVOIDANCE AND TAX EVASION
Part A:
Introduction:
Multinational companies often have differentiating features which a domestic
jurisdictional company may not have. It has differences in international taxes and
uses internal debt for taxation purpose. The recently concluded financial crisis along
with the recession in most of the economies across the world have resulted in the
awareness of the actors that fail to make contribution towards the society by paying
their tax. When corporate companies escape paying taxes, the rest of the companies
together with the households pay the price of such escape in the nature of higher
taxes and reduced welfare. This kind of problems creates an impact on every one.
Difference between tax evasion and tax avoidance:
Each and every asessee wants to avoid paying taxes that encourages them to
use to numerous means for avoiding the payment of taxes. When it comes to saving
tax, then the two most common practice that is witnessed across the world is the tax
avoidance and tax evasion (Braithwaite 2017). Tax avoidance is regarded as the
exercise where the assessee lawfully makes an attempt of defeating the basic
purpose of the law by taking the advantage of the limitations in the law. Tax evasion
on the other hand is regarded as the practice of reducing the liability of tax with the
help of illegal means such as suppressing the income or inflating the expenditure or
by reporting lower income. Below stated are the key differences between the tax
avoidance and tax evasion;
a. The planning that is made to reduce the burden of taxation is without causing
any kind of infringement of the law is regarded as Tax Avoidance (Kasper et

3TAX AVOIDANCE AND TAX EVASION
al. 2017). On the other hand, an illegal activities that is done to avoid the
payment of taxation is regarded as Tax Evasion.
b. Tax avoidance is regarded as the hedging of tax while tax evasion denotes as
the suppression of taxation.
c. Tax avoidance is treated as corrupt practice that twists the rule without any
kind of damage to the legislation. While tax evasion is regarded as illegal and
offensive both in terms of law and morality.
d. The purpose of tax avoidance is to lessen the burden of taxation by applying
script of law (Barker et al. 2016). While tax evasion reduces the liability of
taxation by implementing unfair means.
e. The arrangement for tax avoidance is made in advance the happening of the
tax liability. While tax evasion refers to the arrangement that is made following
the happening of the tax liability.
The tax avoidance and tax evasion both are aimed at reducing the overall
liability of tax but what differentiate them is that tax avoidance is justified under the
eyes of law since it does not make any kind of offence to law (Dyreng, Hanlon and
Maydew 2018). While talking about the tax evasion it is entirely unjustified since it is
a fraudulent activity as it comprises of the acts that are forbidden under the eyes of
law and therefore it is punishable.
Critical discussion and evaluation of two different measures that is used by
multinationals for avoiding or minimizing taxes:
The international system of taxation treats the multinationals in such a manner
that they are the loose collections of the separate entities which is operating in the
different jurisdictions (Alstadsæter, Johannesen and Zucman 2018). This provides
the companies with the huge amount of scope to move the income across the world