Not many people want to pay taxes, but taxes are the law and must be implemented with a real mandate that reflects reality. When talking about this area; The terms “tax evasion” and “tax evasion” must be distinguished, although the difference is very large, people are often confused, the former is legal and tax evasion is illegal.
How is tax evasion different from tax evasion?
First: Tax evasion: It is a legal tax reduction, using theories and methods allowed by the tax law to deduct all legal deductions from the tax base, and achieve tax savings through certain strategies, and taxes may be reduced by approved legal methods. by the tax authorities.
How does the company avoid taxes?
There are many ways to legally reduce taxes by corporations, the most popular of which are:
- Adoption of the tax deferral strategy, deferring the tax date to a later date; This allows the investment to grow without any current tax impact, or the investment is tax-deferred, such as using tax-deferred accounts as retirement money, transferring a percentage of a worker’s pre-tax wages to investment accounts, and various insurances; These accounts legally reduce the amount of tax payable.
- Benefiting from tax exemption through community rehabilitation (such as hiring workers with special needs). By achieving tax credits, the government encourages support for certain activities, such as purchasing fuel-efficient cars, adopting green supply chains, or research and development activities.
- the adoption of the so-called “tax shields”; These shields are designed to prevent high taxes.
- Exploiting tax loopholes; It is “a technology that allows an individual or company to circumvent the scope or limitations of the law without directly violating the law,” such as reducing consumption.
Second: Tax Evasion:
Tax evasion (tax fraud) is an illegal practice of taxation and may be referred to as an “act of fraud or misrepresentation of income or expenses“. It is the intentional failure to pay the taxes due, the non-disclosure of income, or the establishment of expenses that are not legally permitted. Most cases of tax evasion occur in income tax, and this does not preclude the commission of tax evasion in government sales taxes and payroll taxes; It is possible to evade all kinds of taxes
Anyone found guilty of tax evasion could face heavy fines, imprisonment, or both.
When does tax evasion occur?
- There is great ambiguity about the practices that qualify as tax evasion, but there are clear practices that fall under this umbrella; and the most important:
- When real income is not reported intentionally or a tax statement is not submitted in the first place, such as in the case of disclosing income less than what is proven through reports or failure to report the source of income, not to mention providing false information to the IRS about operating income and expenses, and concealment of assets transferred.
- Maintaining two financial records (two types of books: one for the company and the other for government departments) or deliberately entering wrong entries in the books and records, and recording personal expenses as commercial, administrative or operational expenses and reducing them from the tax base.
- What about tax evasion in the salary and wage tax, one of its methods is to submit an incorrect salary and wage tax statement that does not reflect the real salaries and wages of company employees by hiring workers, paying employees’ salaries in cash, or registering employees in official departments such as social insurance with amounts less than their actual salaries, and working Two types of work contracts, one with low values for government departments and the other with high values, and not reporting some or all of the compensation and rewards.
How do we avoid tax evasion?
- Although tax evasion may be intentional, taxpayers may be subject to IRS fines and penalties for illegal tax tactics that some may inadvertently use. Therefore, the best way to prevent unfair tax distribution is to understand the tax laws relating to income tax and payroll tax. A professional familiarity with the principles of financial bookkeeping and an efficient circulation of documents is to avoid over-reviewing and over-distribution by the IRS.
To avoid the tax evasion trap, an honest and wise tax expert or chartered accountant can help you prepare or audit your tax statement. It also keeps you away from bad practices.
The most famous cases of tax evasion:
- Walter Anderson; A former Etisalat CEO who hid his income by using fake names, offshore bank accounts, and fake companies. He was sentenced to 9 years in prison and a $200 million refund.
- Al Capone; His name has long been associated with a crime, as is the act that led to his imprisonment for tax evasion, under the 16th Amendment to the Tax Act of 1916, even infractions are subject to income tax and are due for tax evasion, Capone was sentenced to 11 years in prison, in addition to tax evasion And many fines.
Several figures were accused of tax evasion and brought to trial; Notable among them: Donald Trump, Wesley Snipes, Leona Helmsley, and others. Finally, due to the complexity of tax laws, tax experts are constantly looking for ways to lower taxes on their clients without breaking the law and exploiting loopholes in the law, some of which are ways to practice tax evasion without any legal liability. We find it necessary to watch and be careful not to overstep this and tax evasion, which means getting into the legal and ethical issues that we all need, no matter how justified.