How Governments Tackle Tax Evasion

Unless you have been living under a rock for several decades, it is likely that you have heard something about tax evasion on the radio or on television news. Funnily enough, many people know about celebrities, rich companies, and rich individuals avoiding paying all of their taxes at least in theory, but very few people can actually name an individual or instance of tax avoidance.

Some people will point to the Panama Papers controversy a few years ago. True enough, this story is just one example of many, many, many celebrities and companies using complicated and complex maneuvers to avoid or evade taxes. However, the Panama Papers revealed many celebrities at once (and it involved spying, leaked information, and more, so no wonder it made the headlines).

By the way, in researching information about this issue, I discovered there is a legitimate difference between tax evasion and tax avoidance:

  • Tax evasion is the illegal evasion of taxes by an individual or corporation that they are legally obligated to pay
    Tax avoidance is the usage of loopholes, exceptions, ambiguity, and other legal tools to successfully reduce their tax obligations
  • Understandably, governments do not want their citizens to avoid — or evade — paying the taxes that the governments would expect their citizens to pay. The government’s desire for tax compliance is likely even stronger for its wealthier citizens!

The problem, of course, is that if they set out to pay as little in taxes in possible, a wealthy person is going to be able to find someone who can use the aforementioned loopholes or legal tricks to reduce the tax burden. Sometimes, these legal tricks involve the transfer of funds, assets, or businesses to other countries with shadier or reduced tax requirements.

Tax havens are not beneficial to anyone else but their specific country! As a result, governments around the world have made multiple attempts to work together and solve this problem.

As the international tax law experts at THEVOZ Attorneys, LLC discuss on their website, a few different international standards have been established to combat the issue of international tax evasion.

The Automatic Exchange of Information standard was established as a global baseline for information sharing. So for countries utilizing or agreeing to the Automatic Exchange of Information standard, specific information is shared between international governments; the information sharing becomes useful when people report conflicting information to two different tax agencies.

Another standard, called the Common Reporting Standard makes it so that certain accounts (for individuals or businesses) are directly and automatically reported to other countries’ tax agencies or bureaus.

While this information is certainly dry, I find it interesting to know that there are experts who craft policies (like information-sharing standards) in an attempt to ensure even wealthy people pay their fair share of taxes.

On the other hand, if you are a person lucky enough to be doing business in multiple countries, you should speak with a qualified international tax lawyer who can walk you through the process to make sure that you do not violate any international standards on accident.

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