Tuesday, 9 October 2012

CASE 427 - Tax avoidance

Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is not however a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax avoidance. The term has also been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law. The United States Supreme Court has stated that "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 avoidance and evasion can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system.

The world’s best offshore banking and banking services can be found in the best tax havens. In the best tax havens, offshore banking can be achieved in a tax free environment. Offshore banking can be done by both individuals and corporations in some of the best tax havens available. This includes Cyprus, Luxembourg, Panama, Anguilla, Gibraltar, Dominica, Nevis, the Bahamas and Seychelles among others. Any interest earned by offshore bank accounts in the best tax havens has no taxed imposed. This guarantees the growth of capital invested in the offshore banks.

Offshore banking secrecy is synonymous with offshore tax havens. In fact it is banking secrecy which led to an increase in offshore banking clients in most offshore tax havens of the world. Banking secrecy laws simply provides protection for the information on offshore bank accounts. In the best tax havens where banking secrecy laws have been passed, the laws prohibit the disclosure of information in offshore bank accounts. Exceptions are made if a court order is handed down. Persons who divulge information of offshore bank accounts will have committed a criminal offense and are liable to serve a prison term and or pay monetary fines.

Without a doubt, an offshore tax haven provides clients with a safe place for asset protection. Many offshore clients choose to go offshore to protect their assets from prying hands and eyes. The best offshore tax havens, when utilized properly, can help investors and offshore clients reduce on their tax liabilities. When choosing an offshore tax haven it wise for offshore clients to choose a tax haven which will protect their privacy. In the best tax havens the governments work together with other authorities to ensure that the tax haven remains free from criminal activities such as money laundering.

Tax avoidance reduces government revenue and brings the tax system into disrepute, so governments need to prevent tax avoidance or keep it within limits. The obvious way to do this is to frame tax rules so that there is no scope for avoidance. In practice this has not proved achievable and has led to an ongoing battle between governments amending legislation and tax advisors' finding new scope for tax avoidance in the amended rules. To allow prompter response to tax avoidance schemes, the US Tax Disclosure Regulations (2003) require prompter and fuller disclosure than previously required, a tactic which was applied in the UK in 2004. Some countries such as Canada, Australia and New Zealand have introduced a statutory General Anti-Avoidance Rule (or General Anti-Abuse Rule, GAAR). Canada also uses Foreign Accrual Property Income rules to obviate certain types of tax avoidance. In the United Kingdom, there is no GAAR, but many provisions of the tax legislation (known as "anti-avoidance" provisions) apply to prevent tax avoidance where the main object (or purpose), or one of the main objects (or purposes), of a transaction is to enable tax advantages to be obtained. In the United States, the Internal Revenue Service distinguishes some schemes as "abusive" and therefore illegal.

In the UK, judicial doctrines to prevent tax avoidance began in IRC v Ramsay (1981) followed by Furniss v. Dawson (1984). This approach has been rejected in most commonwealth jurisdictions even in those where UK cases are generally regarded as persuasive. After two decades, there have been numerous decisions, with inconsistent approaches, and both the Revenue authorities and professional advisors remain quite unable to predict outcomes. For this reason this approach can be seen as a failure or at best only partly successful. In the judiciary, different judges have taken different attitudes. As a generalisation, for example, judges in the United Kingdom before the 1970s regarded tax avoidance with neutrality; but nowadays they may regard aggressive tax avoidance with increasing hostility.

In the UK in 2004, the Labour government announced that it would use retrospective legislation to counteract some tax avoidance schemes, and it has subsequently done so on a few occasions, notably BN66. Initiatives announced in 2010 suggest an increasing willingness on the part of HMRC to use retrospective action to counter avoidance schemes, even when no warning has been given.

The super rich get away with not paying any or little tax because some of them get payed only in Gold, some give a few million to charities and others buy people gifts, thus getting away with it

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