Wealth: Tax Avoidance & Tax Evasion

URL	https://Persagen.com/docs/wealth-tax_avoidance_and_tax_evasion.html
Sources	Persagen.com \| Wikipedia (itemized below) \| other sources (cited in situ)
Source URLs	https://en.wikipedia.org/wiki/Tax_avoidance https://en.wikipedia.org/wiki/Tax_evasion https://en.wikipedia.org/wiki/Panama_Papers https://en.wikipedia.org/wiki/Pandora_Papers https://en.wikipedia.org/wiki/Paradise_Papers
Date published	2021-10-04
Curation date	2021-10-04
Curator	Dr. Victoria A. Stuart, Ph.D.
Modified
Editorial practice	Refer here \| Date format: yyyy-mm-dd
Summary	Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of taxes that is payable by means that are within the law. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability.
Key points	Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of taxes that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions. Wealthy individuals, corporations and entities continue to engage in widespread tax avoidance and tax evasion.
Related	Wealth inequality in the United States The Abolition of Wealth International Consortium of Investigative Journalists (ICIJ)
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Background

Tax Avoidance

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of taxes that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes.

Forms of tax avoidance that use tax laws in ways not intended by governments may be considered legal but are almost never considered moral in the court of public opinion and rarely are in journalism. Many corporations and businesses that take part in the practice experience a backlash from their active customers or online. Conversely, benefitting from tax laws in ways that were intended by governments is sometimes referred to as tax planning. The World Bank's World Development Report 2019 on the future of work supports increased government efforts to curb tax avoidance as part of a new social contract focused on human capital investments and expanded social protection.

"Tax mitigation", "tax aggressive", "aggressive tax avoidance" or "tax neutral" schemes generally refer to multiterritory schemes that fall into the grey area between common and well-accepted tax avoidance, such as purchasing municipal bonds in the United States, and tax evasion but are widely viewed as unethical, especially if they are involved in profit-shifting from high-tax to low-tax territories and territories recognised as tax havens. Since 1995, trillions of dollars have been transferred from OECD and developing countries into tax havens using these schemes.

Laws known as a General Anti-Avoidance Rule (GAAR) statutes, which prohibit "aggressive" tax avoidance, have been passed in several countries and regions including Canada, Australia, New Zealand, South Africa, Norway, Hong Kong and the United Kingdom. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering and in the United Kingdom in the Ramsay Principle. The specifics may vary according to jurisdiction, but such rules invalidate tax avoidance that is technically legal but is not for a business purpose or is in violation of the spirit of the tax code.

The term "avoidance" has also been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance exploiting loopholes in the law such as like-kind exchanges. The Supreme Court of the United States has stated, "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted".

Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavourable to a state's tax system.

According to Joseph Stiglitz (1986), there are three principles of tax avoidance: postponement of taxes, tax arbitrage across individuals facing different tax brackets, and tax arbitrage across income streams facing different tax treatment. Many tax avoidance devices include a combination of the three principles.

The postponement of taxes is the present discounted value of postponed tax is much less than of a tax currently paid. Tax arbitrage across individuals facing different tax brackets or the same individual facing different marginal tax rates at different times is an effective method of reducing tax liabilities within a family. However, according to Stiglitz (1986), differential tax rates may also lead to transactions among individuals in different brackets leading to "tax induced transactions". The last principle is the tax arbitrage across income streams facing different tax treatment.

Tax Evasion

Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.

Tax evasion is an activity commonly associated with the informal economy. One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that should be reported to the tax authorities and the actual amount reported.

In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and tax 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, but such classification of tax avoidance is disputable since avoidance is lawful in self-creating systems. Tax evasion is often an offence by an individual, while tax avoidance is often a corporate practice.

Panama Papers

The Panama Papers (Spanish: Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney-client information for more than 214,488 offshore entities. The Panama Papers, some dating back to the 1970s, were created by, and taken from, former Panamanian offshore law firm and corporate service provider Mossack Fonseca.

The Panama Papers contain personal financial information about wealthy individuals and public officials that had previously been kept private. The publication of the Panama Papers made it possible to establish the prosecution of Jan Marsalek, who is still a person of interest to a number of European governments due to his revealed links with Russian intelligence, and international financial fraudsters David Baazov and Josh Baazov. While offshore business entities are legal (see Offshore Magic Circle), reporters found that some of the Mossack Fonseca shell corporations were used for illegal purposes, including fraud, tax evasion, and evading international sanctions.

"John Doe", the whistleblower who leaked the Panama Papers to German journalist Bastian Obermayer from the newspaper Süddeutsche Zeitung, remains anonymous, even to the journalists who worked on the investigation. "My life is in danger", the whistleblower told them. In a May 6, 2016 document, John Doe cited income inequality as the reason for the action and said they leaked the Panama Papers "simply because I understood enough about their contents to realize the scale of the injustices they described". Doe added that they had never worked for any government or intelligence agency and expressed willingness to help prosecutors if granted immunity from prosecution. After Süddeutsche Zeitung verified that the statement did in fact come from the source for the Panama Papers, the International Consortium of Investigative Journalists (ICIJ) posted the full document on its website.

Süddeutsche Zeitung asked the ICIJ for help because of the amount of data involved. Journalists from 107 media organizations in 80 countries analyzed documents detailing the operations of the law firm. After more than a year of analysis, the first news stories were published on April 3, 2016, along with 150 of the documents themselves. The project represents an important milestone in the use of data journalism software tools and mobile collaboration.

The documents were dubbed the Panama Papers because of the country they were leaked from, but the Panamanian government expressed strong objections to the name over concerns that it would tarnish the government's and country's image worldwide, as did other entities in Panama and elsewhere. Some media outlets covering the story have used the name "Mossack Fonseca papers".

In October 2020, German authorities issued an international arrest warrant for the two founders of the law firm at the core of the tax evasion scandal exposed by the Panama Papers. Cologne prosecutors are seeking German-born Jürgen Mossack and Panamanian Ramón Fonseca on charges of accessory to tax evasion and forming a criminal organization.

Pandora Papers

The Pandora Papers are 11.9 million leaked documents (comprising 2.9 terabytes of data) that were published by the International Consortium of Investigative Journalists (ICIJ) beginning on 3 October 2021. The news organisations of the ICIJ described the document leak as their most expansive exposé of financial secrecy yet, containing documents, images, emails and spreadsheets from 14 financial service companies, in nations including Panama, Switzerland and the United Arab Emirates, surpassing their previous release of the Panama Papers in 2016, which had 11.5 million confidential documents. At the time of the release of the papers, the ICIJ said it is not identifying its source for the documents.

Up to an estimated US$32 trillion (excluding non-monetary valuables such as real estate, art, and jewelry) may be hidden from being taxed, according to news reports.

Paradise Papers

The released information resulted in scandal, litigation, and loss of position for some of the named, as well as litigation against the media and journalists who published the papers.

KPMG Tax Shelter Fraud

The KPMG tax shelter fraud scandal involves allegedly illegal U.S. tax shelters by KPMG that were exposed beginning in 2003. In early 2005, the United States member firm of KPMG International - KPMG LLP - was accused by the United States Department of Justice of fraud in marketing abusive tax shelters.

KPMG: Deferred Prosecution Agreement

Under a deferred prosecution agreement, KPMG LLP admitted criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients dodge $2.5 billion in taxes and agreed to pay $456 million in penalties. KPMG LLP will not face criminal prosecution as long as it complies with the terms of its agreement with the government. On January 3, 2007, the criminal conspiracy charges against KPMG were dropped. However, Federal Attorney Michael J. Garcia stated that the charges could be reinstated if KPMG does not continue to submit to continued monitorship through September 2008.

On 29 August 2005, nine individuals, including six former KPMG partners and the former deputy chairman of the firm, were criminally indicted in relation to the multibillion-dollar criminal tax fraud conspiracy. The nine individuals named in the indictment were:

On 17 October 2005, another ten individuals were indicted on criminal conspiracy and tax evasion charges.

The four tax shelters at issue were known as BLIPS, or bond linked issue premium structure; FLIPS, or foreign leveraged investment program; OPIS, or offshore portfolio investment strategy and a variant of FLIPS; and SOS, or short option strategies.

KPMG Tax Shelter Fraud: Canada

... Highly reputed multinational accounting firm KPMG has been accused by the Canada Revenue Agency of offering tax evasion schemes as products to its clients. It alleged that the KPMG tax structures were in reality a "sham" intended to deceive the tax authorities. KPMG offered a "no tax" scheme in return for a fee of 15% and in one case before the courts, it earned $300,000 in fees. [Source: Wikipedia, 2021-10-04.]