Tax avoidance is using existing legislation to reduce the tax liability. It is manipulating existing tax laws, to gain advantages which it was not intended for.
Tax evasion is the illegal practice of deliberately avoiding tax liability by understating, misrepresenting or withholding information.
Although Tax avoidance schemes are designed to be within the laws and legislation of any country (that is, tax avoidance schemes do not break the law), the government and tax authorities of any country frowns upon such schemes, as they are usually for the purpose of gaining undue advantage. From the position of a tax authority, tax avoidance schemes undermine confidence in the tax laws of a country, and denies necessary income to the government.
Individuals, institutions, and organisations that are found guilty of tax evasion are likely to face penalties, and jail time. It is however difficult to deter tax avoidance with the threat of jail time, largely because it is within the law. More often than not, most countries are actively involved in preventing, and deterring tax avoidance, and in some cases, suing for payment of the tax owed.
Recently organisations and especially Accounting firms found to be involved in tax avoidance schemes are named and shamed. The responsibility of a chartered accountant towards his client cannot be denied, but ethics goes beyond client responsibility- it is the duty of the accountant to consider the wider reaching impact of professional advice given, on the larger community, and the country in which his clients operate. Simply put, tax avoidance robs the communities and countries (in which individuals and organisations operate) of revenue.
Internationally, concerned groups are bringing to light tax avoidance schemes by multinational corporations operating in Africa. Accounting & Business International (January Edition) reports that African nations may have lost hundreds of millions of dollars in revenue from tax, as a result of tax avoidance advice given by Deloitte.
F6 Students are expected to know the difference between tax avoidance, and tax evasion, the ethical and professional approach to tax avoidance and evasion, as well as the General Anti-Abuse Rule (for UK variant)
*Students writing other F6 variants may also find the information on Tax avoidance and evasion useful.
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