Product Code Database
Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the illegal non-payment of tax liabilities. The use of the term "noncompliance" is used differently by different authors.Dyreng SD, Hanlon M, Maydew EL. (2008). Noncom Long-run corporate tax avoidance. The Accounting Review. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States.
In the United States, the use of the term 'noncompliance' often refers only to illegal misreporting.For example, see: GAO. (2012). Sources of Noncompliance and Strategies to Reduce It. GAO-12-651T. Laws known as a General Anti-Avoidance Rule (GAAR) statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including the United States (since 2010),Prebble R, Prebble J. (2010). Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law?. Saint Louis University Law Journal. Canada, Australia, New Zealand, South Africa, Norway and Hong Kong. UK’s general anti-avoidance rule process on schedule. T Magazine. 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. Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is technically legal but not for a business purpose or in violation of the spirit of the tax code.For example, a Canadian organization describes Canada's law, first passed in 1988 in Section 245 of the Canada's federal income tax act (described here [5]), as invalidating the tax consequences of a tax avoidance transaction if "not conducted for any primary purpose other than to obtain a tax benefit". Related terms for tax avoidance include tax planning and .
Individuals that do not comply with tax payment include and Tax resistance. Tax protesters attempt to evade the payment of taxes using alternative interpretations of the tax law, while tax resisters refuse to pay a tax for conscientious reasons. In the United States, tax protesters believe that taxation under the Federal Reserve is unconstitutional, while tax resisters are more concerned with not paying for particular government policies that they oppose. Because taxation is often perceived as onerous, governments have struggled with tax noncompliance since the earliest of times.
In particular, in the American legal system, tax evasion is a criminal action disciplined by 26 US Code §7201, under which the taxpayer who fails to pay or willfully underpays his tax liability (i.e., with criminal mens rea like stated in the James v. United States) will undergo criminal penalties. On the other side of the coin, tax avoidance happens when the taxpayer tries to lessen his tax obligation using deductions and credits to maximize after-tax income. All of this is considered legal by the IRS even though it foresees civil penalties. All things considered, the main difference between tax evasion and tax avoidance is the taxpayer's guilty mind of minimization or failure to pay the tax liability.
An empirical study by ALMJames Alm. Russian Attitudes Toward Paying Taxes-Before, During and After the Transition J. International Journal of Social Economics, 2006 3,3. on transition countries such as Russia found that there is a strong negative relationship between tax customary variables and underground economic size variables (which represent tax evasion or tax gaps) (correlation coefficient is -0.657). And both variables are significant at the 1% level.
Bird believed that a sustainable and efficient tax system must be based on perceived fairness and goodwill response to taxation. It must be connected organically with the provision of public goods or services. If taxpayers see their preferences reflected in governance and see efficient provision of government services, they stay in the official economy and fulfill tax obligations. Tax revenues increase while the tax gap narrows.Bird, Martinez-Vazquez,Torgler. The Challenges of Tax Reform in the Global Economy M. New York: Springer, 2006.
The economic experiments cited by Torgler and SchalteggerTorgler, Schneider, Schaltegger. Local Autonomy, Tax Morale and the Shadow EconomyC. School of Economics and Finance Discussion Papers and Working Papers Series 243, Queensland University of Technology, 2009. show that the extensive exercise of voting rights in tax affairs will significantly increase taxpayer compliance. The deeper the taxpayer participates in political decision making, the higher the tax contract performance efficiency and tax compliance. The taxpayer society in this state is a civil society with tax and good customs, and the taxpayer is a real citizen who has been given a wide range of powers.
Everest PhillipsEverest-Phillips, M. Business Tax as State-building in Developing Countries: Applying Governance Principles in Private Sector DevelopmentJ. International Journal of Regulation and Governance, 20088,(2). believes that the design of a reasonable and effective tax system is an important part of the construction in a country. The operation of this tax system must be based on the higher compliance of taxpayers and the goodness of taxation rather than relying on coercive measures. He pointed out that as the country's tax system for building important content must have the following five important characteristics:
A reasonable explanation for the introduction of value-added tax by most developing countries in the world is to increase the taxpayer's compliance with tax payment through the mutual supervision mechanism between taxpayers without increasing the cost imposed by the tax administration authorities. This consideration for the factors of taxation determines that developing countries can only adopt the tax system that is mainly based on turnover tax. From the perspective of taxation, due to restrictions on the level of taxation in developing countries, tax revenues can only be raised through indirect taxes that focus on taxes such as value-added tax and consumption tax, while direct taxes represented by income taxes and property taxes are included in total tax revenue. The proportion is relatively low. Bird and ZoltBird,Richard,Zolt.Redistribution Via Taxation:The Limited Role of the Personal Income Tax in Developing CountriesJ.UCLA Law Review,20055,2(6). pointed out that, contrary to the practice of taxation in developed countries, personal income tax still plays a very limited role in developing countries today, both in terms of income mobilization and adjustment of income disparities. In 2000, the income tax income of developed countries was 53.8% of total income, compared with 28.3% in developing countries. They believe that wages and other income of workers in the informal sector in developing countries are still free from tax collection. The same is true of the property tax situation. Due to the lack of necessary information and assessment mechanisms for the assessment of property values, property taxes cannot be successfully implemented in many developing countries; even if developing countries with property taxes exist, their income collection is still insufficient. From the above analysis, we can see that compared with indirect taxes, developing countries still have a large tax gap in terms of direct taxes.
Tax resistance is the refusal to pay a tax for conscientious reasons (because the resister finds the government or its actions morally reprehensible). They typically do not find it relevant whether that the tax laws are themselves legal or illegal or whether they apply to them, and they are more concerned with not paying for what they find to be grossly immoral, such as the bombing of innocents.
By contrast, the term "tax avoidance" describes lawful conduct, the purpose of which is to avoid the creation of a tax liability in the first place. Whereas an evaded tax remains a tax legally owed, an avoided tax is a tax liability that has never existed.
For example, consider two businesses, each of which have a particular asset (in this case, a piece of real estate) that is worth far more than its purchase price.
In the above example, tax may or may not eventually be due when the second property is sold. Whether and how much tax will be due will depend on circumstances and the state of the law at the time.
Under this statute and related case law, the prosecution must prove, beyond a reasonable doubt, each of the following three elements:
An affirmative act "in any manner" is sufficient to satisfy the third element of the offense. That is, an act which would otherwise be perfectly legal (such as moving funds from one bank account to another) could be grounds for a tax evasion conviction (possibly an attempt to evade payment), provided the other two elements are also met. Intentionally filing a false tax return (a separate crime in itself). could constitute an attempt to evade the assessment of the tax, as the Internal Revenue Service bases its initial assessment (i.e., the formal recordation of the tax on the books of the U.S. Treasury) on the tax amount shown on the return.
However, merely asserting that one has such a good faith belief is not determinative in court; under the American legal system the trier of fact (the jury, or the trial judge in a non-jury trial) decides whether the defendant really has the good faith belief he or she claims. With respect to willfulness, the placing of the burden of proof on the prosecution is of limited utility to a defendant that the jury simply does not believe.
A further stumbling block for tax protesters is found in the Cheek Doctrine with respect to arguments about "constitutionality." Under the Doctrine, the belief that the Sixteenth Amendment was not properly ratified and the belief that the federal income tax is otherwise unconstitutional are not treated as beliefs that one is not violating the "tax law" – i.e., these errors are not treated as being caused by the "complexity of the tax law."
In the Cheek case the Court stated:
The Court continued:
The Court ruled that such beliefs – even if held in good faith – are not a defense to a charge of willfulness. By pointing out that arguments about constitutionality of federal income tax laws "reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable", the Supreme Court may have been impliedly warning that asserting such "constitutional" arguments (in open court or otherwise) might actually help the prosecutor prove willfulness.See also Spies v. United States, 317 U.S. 492 (1943); Sansone v. United States, 380 U.S. 343 (1965); Cheek v. United States, 498 U.S. 192 (1991). Daniel B. Evans, a tax lawyer who has written about tax protester arguments, has stated that
By contrast, under Canadian law, the honesty of a taxpayer in expressing his beliefs can be a mitigating factor in sentencing. In R. v. Klundert, 2011 ONCA 646, the Ontario Court of Appeal upheld a tax protestor's conviction, but allowed him to serve a conditional sentence in the community on the grounds that his behaviour was neither fraudulent nor deceitful. The one-year custodial sentence imposed by the trial judge was overturned on this basis:
In cases where a taxpayer does not have enough money to pay the entire tax bill, the IRS can work out a payment plan with taxpayers, or enter into a collection alternative such as a partial payment Installment Agreement, an Offer in Compromise, placement into hardship or "currently non-collectable" status or file bankruptcy.
For years for which no return has been filed, there is no statute of limitations on civil actions – that is, on how long the IRS can seek taxpayers and demand payment of taxes owed.See .
For each year a taxpayer willfully fails to timely file an income tax return, the taxpayer can be sentenced to one year in prison.See . In general, there is a six-year statute of limitations on federal tax crimes.See .
The IRS has run several Overseas Voluntary Disclosure Programs in 2009 and 2011, and its current one has "no set deadline for taxpayers to apply. However, the terms of this program could change at any time going forward.".
By contrast, the civil penalty for failure to timely pay the tax actually "shown on the return" is generally equal to 0.5% of such tax due per month, up to a maximum of 25%.See . The two penalties are computed together in a relatively complex algorithm, and computing the actual penalties due is somewhat challenging.
Tax mitigation is conduct which reduces tax liabilities without "tax avoidance" (not contrary to the intention of Parliament), for instance, by gifts to charity or investments in certain assets which qualify for tax relief. This is important for tax provisions which apply in cases of "avoidance": they are held not to apply in cases of mitigation.
The clear articulation of the concept of an avoidance/mitigation distinction goes back only to the 1970s. The concept originated from economists, not lawyers.See for instance CT Sandford, Hidden Costs of Taxation, IFS, 1973. The use of the terminology avoidance/mitigation to express this distinction was an innovation in 1986: IRC v Challenge.(1986) STC 548.
In practice, the distinction is sometimes clear, but often difficult to draw. Relevant factors to decide whether conduct is avoidance or mitigation include: whether there is a specific tax regime applicable; whether transactions have economic consequences; confidentiality; tax linked fees. Important indicia are familiarity and use. Once a tax avoidance arrangement becomes common, it is almost always stopped by legislation within a few years. If something commonly done is contrary to the intention of Parliament, it is only to be expected that Parliament will stop it.
So that which is commonly done and not stopped is not likely to be contrary to the intention of Parliament. It follows that tax reduction arrangements which have been carried on for a long time are unlikely to constitute tax avoidance. Judges have a strong intuitive sense that that which everyone does, and has long done, should not be stigmatised with the pejorative term of "avoidance". Thus UK courts refused to regard sales and repurchases (known as bed-and-breakfast transactions) or back-to-back loans as tax avoidance.
Other approaches in distinguishing tax avoidance and tax mitigation are to seek to identify "the spirit of the statute" or "misusing" a provision. But this is the same as the "evident intention of Parliament" properly understood. Another approach is to seek to identify "artificial" transactions. However, a transaction is not well described as "artificial" if it has valid legal consequences, unless some standard can be set up to establish what is "natural" for the same purpose. Such standards are not readily discernible. The same objection applies to the term "device".
It may be that a concept of "tax avoidance" based on what is contrary to "the intention of Parliament" is not coherent. The object of construction of any statute is expressed as finding "the intention of Parliament". In any successful tax avoidance scheme, a Court must have concluded that the intention of Parliament was not to impose a tax charge in the circumstances which the tax avoiders had placed themselves. The answer is that the expression "intention of Parliament" is being used in two senses.
It is perfectly consistent to say that a tax avoidance scheme escapes tax (there being no provision to impose a tax charge) and yet constitutes the avoidance of tax. One is seeking the intention of Parliament at a higher, more generalised level. A statute may fail to impose a tax charge, leaving a gap that a court cannot fill even by purposive construction, but nevertheless one can conclude that there would have been a tax charge had the point been considered. An example is the notorious UK case Ayrshire Employers Mutual Insurance Association v IRC,27 TC 331. where the House of Lords held that Parliament had "missed fire".
It was slow to be accepted in the United Kingdom. By the 1950s, knowledgeable and careful writers in the UK had come to distinguish the term "tax evasion" from "avoidance". However, in the UK at least, "evasion" was regularly used (by modern standards, misused) in the sense of avoidance, in law reports and elsewhere, at least up to the 1970s. Now that the terminology has received official approval in the UK ( Craven v White)(1988) 62 TC 1 at 197. this usage should be regarded as erroneous. But even now it is often helpful to use the expressions "legal avoidance" and "illegal evasion", to make the meaning clearer.
| 172,3 |
| 44,0 |
| 61,0 |
| 43,1 |
| 85,4 |
| 181,0 |
| 93,5 |
| 38,5 |
| 235,7 |
| 74,2 |
| 40,9 |
| 262,0 |
| 48,7 |
| 103,1 |
| 69,8 |
| 171,7 |
| 87,6 |
| 49,7 |
| 125,0 |
| 197,6 |
| 139,9 |
| 187,4 |
| 109,8 |
| 214,6 |
| 302,9 |
| 60,7 |
| 135,4 |
| - |
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