Tax Research Clinic – Tax Avoidance and Evasion

The tax avoidance and tax evasion articles below had been specially grouped on this page to provide articles and commentary for research students and professionals.

Discussion Paper on Tax Avoidance and Section 103 of the Income Tax Act, 1962 (Act No. 58 of 1962)

1. IntroductionSection 103 of the Income Tax Act, 1962 (Act No. 58 of 1962), contains the Act’sGeneral Anti-Avoidance Rule (GAAR). In its current form, the GAAR has proven tobe an inconsistent and, at times, ineffective deterrent to the increasingly complex andsophisticated tax “products” that are being marketed by banks, “boutique” structuredfinance firms, multinational accounting firms and law firms. These products typicallyinvolve the use of circular or offsetting flows of cash and property, special purposeentities or other accommodating parties, and complex financial instruments such asderivatives. The tremendous flexibility of derivatives, together with the ease withwhich they may be combined with, orContinue reading Continue reading →

Tax avoidance – Is It Possible To Avoid Tax Legally?

  Avoiding the burden of tax is often the focus of conversation. But, is it possible to avoid tax legally? Ettiene Retief, SAIPA’s Chairman of Tax Committee, unpacks the basics on how best to avoiding tax legally. Often the biggest mistake made by taxpayers is the lack of planning. One can’t change the facts and nature of a transaction after it has been completed. Therefore, the tax liability is based on those facts and the nature on which the transaction was embarked or concluded on. Proper planning beforehand will help understand the tax liability, the timing of the tax liability,Continue reading Continue reading →

Tax avoidance – “Unlawful” tax evasion and “lawful” tax avoidance

February 26, 2010 By Quintin Leave a Comment Ernst & Young In the Duke of Westminster’s case 1(which was endorsed by the Appellate Division of South Africa) it was held that ‘every man is entitled to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be’. Thus, in the past it was generally accepted that there was a simple distinction between “unlawful” tax evasion and “lawful” tax avoidance. While ‘tax evasion’ was generally regarded as an illegal and dishonest means to escape tax, ‘tax avoidance’ was viewed as a legitimate andContinue reading Continue reading →

Tax avoidance – The taxing affair of tax avoidance on trusts

by Beric Croome, September 09 2013, 16:32 IN HIS budget speech this year, Finance Minister Pravin Gordhan indicated legislative measures will be introduced to address tax avoidance arising from the utilisation of trusts. The National Treasury has since indicated that a discussion paper will be released dealing with the taxation of trusts generally prior to amending legislation being introduced. Initially, there were concerns that the taxation of trusts would be amended in the 2013 Draft Taxation Laws Amendment Bill, but, fortunately, no amendments are contained in the legislation which was released for public comment on July 4. A significant numberContinue reading Continue reading →

Tax avoidance – A comparison of statutory general anti-avoidance rules and judicial general anti-avoidance doctrines as a means of controlling tax avoidance: Which is better? (What would John Tiley think?)

IntroductionThere is an inverse relationship between quantity and quality with respectto many things, including writing about tax avoidance. Everyone workingin the tax area has views about tax avoidance and almost everyone,it seems, feels an irresistible urge to inflict these views on others. Mostof the writing on tax avoidance is in the nature of fast food: quickly prepared,consumed, digested and forgotten – and, if consumed in excessivequantities, dangerous to your (mental) health. In a fast-foodworld, masterchefs are revered and celebrated. Professor John Tiley is amaster chef withrespect to offerings about tax avoidance. His writings about controllingtax avoidance constitute the fine-dining experience,Continue reading Continue reading →

Tax avoidance – Tax Havens and the Taxation of Transnational Corporations

MARKUS HENNJune 2013 Tax avoidance and tax evasion by transnational companies and the role played by taxhavens have recently received much media attention, when it transpired that prominentcompanies such as Starbucks and Apple pay virtually no income taxes on theirmassive international profits. The case of the world’s largest commodity trader, Glencore,demonstrates that tax evasion by multinationals also affects developing countries.Tax issues and the detrimental role played by tax havens are now firmly on theinternational policy agenda, for example at the G20. Transnational companies employ a number of techniques to benefit from the crosscountrynature of their transactions, as well as fromContinue reading Continue reading →

Tax avoidance – Tax Havens: International Tax Avoidance and Evasion

Jane G. GravelleSenior Specialist in Economic PolicyJanuary 23, 2013 SummaryRecent actions by the Organization for Economic Cooperation and Development (OECD) and the G-20 industrialized nations have targeted tax haven countries, focusing primarily on evasion issues. The HIRE Act (P.L. 111-147) included a number of anti-evasion provisions, and P.L. 111-226 included foreign tax credit provisions. Some of these proposals, and some not adopted, are in the American Jobs and Closing Loopholes Act (H.R. 4213); the Stop Tax Haven Abuse Act (S.506, H.R. 1265); draft proposals by the Senate Finance Committee; two other related bills, S. 386 and S. 569; the BipartisanContinue reading Continue reading →

Tax avoidance – Addressing tax evasion and tax avoidance in developing countries

1. IntroductionMost developed countries are characterized by a broad base for direct andindirect taxes with tax liability covering the vast majority of citizens and firms.Developing countries, in contrast, are confronted with social, political andadministrative difficulties in establishing a sound public finance system. As aconsequence, developing and emerging countries are particularly vulnerable totax evasion and avoidance activities of individual taxpayers and corporations.This can be considered one of the primary reasons for large differences in theability to mobilize own resources between developed and developing countries.While tax revenues in OECD-countries amount to almost 36 per cent of grossnational income in 20071, the shareContinue reading Continue reading →

TAX AVOIDANCE, EVASION, AND ADMINISTRATION

JOEL SLEMRODThe University of Michigan SHLOMO YITZHAKIThe Hebrew University of Jerusalem AbstractTax avoidance and evasion are pervasive in all countries, and tax structures areundoubtedly skewed by this reality. Standard models of taxation and their conclusionsmust reflect these realities.This paper first presents theoretical models that integrate avoidance and evasion intothe overall decision problem faced by individuals. Early models of this area focusedon tax evasion, modeled as a gamble against the enforcement capability of the state.More recently, the literature has examined more general models of the technology ofavoidance, with the additional risk bearing caused by tax evasion either being a specialcase ofContinue reading Continue reading →

Tax avoidance – Tax evasion, tax avoidance and development finance

Working Paper Number 129Tax evasion, tax avoidance and development financeAlex Cobham*1Domestic revenue mobilisation is key to sustainable developmentfinance – only self-sufficiency will allow the development offully-functioning states with flourishing systems of politicalrepresentation and economies reflecting societies’ expressedpreferences in regard to, for example, inequality. Tax evasionand tax avoidance are important insofar as they affect both thevolume and nature of government finances. This paper estimatesthe total cost to developing countries of these leakages asUS$385 billion annually, dwarfing any potential increase in aid.An additional result suggests that doubling aid to low incomecountries may have little positive revenue effect but damage thestrength of politicalContinue reading Continue reading →

Tax Avoidance and Tax Evasion Explained and Exemplified

By Skanda Kumarasingam   Introduction There is a clear-cut difference between tax avoidance and tax evasion. One is legally acceptable and the other is an offense. Unfortunately however many consultants even in this country do not understand the difference between tax avoidance and tax evasion. Most of the planning aspects that have been suggested by these consultants often fall into the category of tax evasion (which is illegal) and so tends to put clients into a risky situation and also diminish the value of tax planning. This may be one of the prime reasons where clients have lost faith inContinue reading Continue reading →

Tax avoidance – Canada: A Guilty Plea To Tax Evasion? Beware The Civil Consequences

Last Updated: November 5 2013 Article by Greg DelBigio Thorsteinssons LLP It is almost always the case that criminal charges for tax evasion are accompanied by a civil assessment or reassessment of taxes. Often, the fact situation is straightforward. The person earned more income than was declared. The failure to declare the income is the basis of the tax evasion charge and the Minister reassesses taxes based upon the undeclared income and imposes gross negligence penalties. Several recent cases have illustrated the importance of being forward looking when providing advice on whether a client who is charged with tax evasionContinue reading Continue reading →

Tax avoidance isn’t a left or right issue, it’s a cancer eating our democracy

  Everything you need to know about tax. by Willard Foxton Published 21 June, 2012 – 12:47   Police guard the entrance to HMRC during a demonstration against corporate tax avoidance in 2011. Photograph: Getty Images I must confess, I am a tax-dodger. As I am a Tory, and you are a New Statesman reader, this may come as no surprise. My sin was grave – last night, on my way home from work I bought some biscuits on a two for one deal, thus avoiding several pennies of VAT. We all avoid tax to a certain extent; many peopleContinue reading Continue reading →

Tax Avoidance and Tax Evasion – the differences

Tax avoidance is generally the legal exploitation of the tax regime to one’s own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authorities. Examples of tax avoidance involve using tax deductions, changing one’s business structure through incorporation or establishing an offshore company in a tax haven. By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayersContinue reading Continue reading →

Tax Avoidance – Connected persons

In tax, as in business, it matters a lot whether or not you are connected. In most tax systems across the world, a taxpayer’s relation to other entities with which it transacts determines whether a range of anti-avoidance legislation will apply or not. Whether the parties are called “related parties”, or “connected persons” as is the case in South Africa, this implies a non-arm’s-length commercial relationship between transacting entities and forms the cornerstone upon which revenue authorities seek to justify the application of anti-avoidance legislation. In the South African domestic tax law, transfer pricing provisions are applied to adjust pricesContinue reading Continue reading →

Tax Research Clinic – Tax Avoidance and Evasion

The tax avoidance and tax evasion articles below had been specially grouped on this page to provide articles and commentary for research students and professionals. Discussion Paper on Tax Avoidance and Section 103 of the Income Tax Act, 1962 (Act No. 58 of 1962) 1. IntroductionSection 103 of the Income Tax Act, 1962 (Act No. 58 of 1962), contains the Act’sGeneral Anti-Avoidance Rule (GAAR). In its current form, the GAAR has proven tobe an inconsistent and, at times, ineffective deterrent to the increasingly complex andsophisticated tax “products” that are being marketed by banks, “boutique” structuredfinance firms, multinational accounting firms andContinue reading Continue reading →

Tax avoidance – TAX SAVINGS WITHOUT LOOPHOLES!

At tax year-end your accountant is normally summoned to use his/her number crunching skills and/or knowledge of the Income Tax Act, to work his/her magic to maximize your tax deductions and write offs for the business.  “Loopholes” are gaps in tax legislation, which is used by tax practitioners, to circumvent tax laws, therefore making it easy to reduce tax. Beware; loopholes are a tightrope between tax avoidance (legal) and tax evasion (illegal) method of reducing taxes.  Over the last ten years or so, The South African Revenue Service (SARS) has clamped down on loopholes, thus making it next to impossibleContinue reading Continue reading →

Tax avoidance – United Kingdom: Confidentiality, Tax Avoidance and Evasion August 22, 2013

Last Updated: 31 October 2013 Article by Howard Bilton The Sovereign Group   Dennis Healy, when he was the UK Chancellor of the Exchequer, once said that “the difference between tax avoidance and tax evasion is the thickness of a prison wall.” What he meant was that there is a fine line between illegal tax evasion, and legal tax avoidance. Put another way, if someone gets married and the unplanned consequence is that tax is saved that is lucky. If that person gets married and the main reason is to save tax, it is tax avoidance. If that person tellsContinue reading Continue reading →

TAX AVOIDANCE VS TAX EVASION : WHAT’S THE DIFFERENCE?

 By Jandre Robbertze  To what extent can you limit your tax liability by being creative with transactions and business structures, without running into trouble with the law?    In order to answer this question, one needs to consider the difference between permissible tax avoidance arrangements and impermissible tax avoidance arrangements as well as the difference between tax avoidance and tax evasion.  Section 80A of the Income Tax Act deals with the issue of tax avoidance as follows:  Firstly, with regards to businesses: This section deems a particular arrangement as impermissible if it was entered into in a manner that would notContinue reading Continue reading →

Tax avoidance – Acceptable tax planning

  Every day, taxpayers structure their transactions to make use of the deductions, exemptions and allowances contained in the tax statutes so as to minimise the tax liabilities imposed by the detailed, complicated and lengthy sets of taxing provisions. The question is: when does this activity cease being legitimate tax planning and become tax avoidance which the law should prohibit? Courts and lawmakers have long grappled to discover abusive transactions so that taxpayers cannot benefit from the related tax savings.       As a result of experience, South Africa has determined it is necessary to go beyond the approachContinue reading Continue reading →

Tax Avoidance – Differences between Tax Avoidance and Tax Evasion

Tax avoidance is generally the legal exploitation of the tax regime to one’s own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authorities. Examples of tax avoidance involve using tax deductions, changing one’s business structure through incorporation or establishing an offshore company in a tax haven. By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayersContinue reading Continue reading →

Tax avoidance – Impermissible tax avoidance arrangements – more than just a slap on the wrist

Hawa Hoosen, Senior Tax Consultant, Grant Thornton Durban Although not promoted by South African tax law, it is generally legal and acceptable for taxpayers to intentionally apply legal measures to arrange their businesses and activities in a manner that will decrease their tax liability, within an overall framework of commercial justification. In the often-quoted case of IRC v Duke of Westminster, Lord Tomlin summarised the concept of tax planning when he said, “every man is entitled, if he can, to order his affairs so that the tax attaching is less than it otherwise would be”. However, with the great rewardContinue reading Continue reading →

Anti-tax Avoidance Exchange of Information Agreement With Gibraltar

Author: Professor Peter Surtees & Andrew Wellsted On 11 July 2013 South Africa and Gibraltar signed an exchange of information agreement relating to tax matters. This is part of a growing practice, in which South Africa is an active participant. It reflects a global policy between fiscal authorities to address perceived tax avoidance by multi-national corporations. Share

Agreements for the avoidance of double taxation

In certain circumstances, the provisions of an agreement for the avoidance of double taxation may be applicable. Most countries impose income tax both on the worldwide income derived by the residents of the country and on income derived by non-residents in that country. The effect of such a system is that income derived by a resident of one country from a source in another country is subject to tax in both countries. As this position discourages foreign investment, countries that have trade relationships entered into agreements for the avoidance of double taxation. Such agreements provide that income of a particularContinue reading Continue reading →

Taxing Matters – General anti-avoidance rule

Introduction A new General Anti-Avoidance Rule (GAAR) has been introduced and is applicable in respect of any transaction or any step therein or part thereof entered into on or after 2 November 2006 (the effective date). This means that if an arrangement was entered into before the effective date and a step therein or part thereof is entered into after the effective date, the new GAAR will not apply. The motivation cited by SARS for the introduction of the new GAAR is the fact that, as a result of the increasingly sophisticated forms of tax avoidance implemented by taxpayers andContinue reading Continue reading →

GAAR rising Mapping tax enforcement’s evolution – February 2013

Defining GAAR Anti-avoidance rules are divided into two main categories: “general” and “specific.”A general anti-avoidance rule (GAAR) is aset of broad principles-based rules within a country’s tax code designed to counteractthe perceived avoidance of tax. GAAR is aconcept within law that provides the taxingauthority a mechanism to deny the tax benefits of transactions or arrangements believed not to have any commercialsubstance or purpose other than to generatethe tax benefit(s) obtained. Tax law designed to deal with particulartransactions of concern are termed as eitherspecific  anti-avoidance rules (SAARs) or, lesscommonly, targeted anti-avoidance rules (TAARs).   DOWNLOAD FULL ARTICLE : GAAR rising MappingContinue reading Continue reading →

Fight graft by taking leaf from tax books of Ancient Greeks

The tax debate, internationally and in South Africa, is progressively focusing on closing perceived tax loopholes (in order to boost collections) and increasing self-assessment through vigorous auditing by the tax authorities. In pursuing this goal, Finance Minister Pravin Gordhan has appointed Judge Dennis Davis as the chairman of the Davis Tax Committee. Davis has been quoted as saying that the challenge for the committee is to design a tax system that, among other things, achieves “the spending needs of the government and its distributional ambitions”.  The collection of taxes is important but addresses only one part of the equation. Share

Ethical taxpaying: how does a company ascertain the “right amount of tax”?

Author: Matthew Hodkin – Norton Rose Fulbright LLP Tax has been much in the news recently. This is not the first time that tax has risen to the top of the political agenda but now public mood has shifted towards the idea that people should be paying more tax. Historically, tax has caused all manner of protests, uprisings and even wars but there has also previously been sustained public outcry that people just aren’t paying as much tax as they ought. This developing perception of tax as a moral or ethical obligation creates difficulty with which existing corporate processes are notContinue reading Continue reading →

Another section 103 Defeat for SARS in the Cape Tax Court

Author: Frank Mosupa (PwC)  The judgment of the Western Cape Tax Court in ITC 1862 (2013) 75 SATC 34 concerns the general anti-avoidance provision contained in the now-repealed section 103 of the Income Tax Act 58 of 1962 (the “Income Tax Act”) as applied to the implementation of a particular employee share incentive scheme. The case concerned transactions entered into prior to the coming into force of the new general anti-avoidance rule on 2 November 2006 and now contained in Part IIA of the Income Tax Act. Share

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