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Analysis of Tax Avoidance and Tax Planning

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The principle of IRC and Duke of Westminster No. 1 of 1936 is that a person can manage his financial situation and he must pay a lower tax. If he manages to do so, he will not be punished by tax laws. Later, when the court decided to introduce the Ramsey principle to tax taxpayers’ corrective actions, this became irrelevant. Tax avoidance stems from tax planning, through which a company’s managers verify the means and measures to be adopted to reduce the tax burden and adopt the correct management of financial documents. It is a right attitude, in which avoiding generating facts that overload the tax burden of that legal entity by choosing less costly facts.

According to the doctrine, tax evasion may result from the law itself or may result from gaps and loopholes in the law. In this sense, the elision is derived from the law when the normative text provides a means of granting benefits, as is the case of tax incentives. Elision will be the result of gaps and gaps, in turn, when the taxpayer conducts his business in a way to reduce the tax burden. This is the case with companies that transfer their factories to municipalities with a lower ISSQN (service tax of any kind) rate, in order to pay less tax. Tax planning, and consequently tax avoidance, therefore deserves to be analyzed by each company as a legal way of reducing its burden and increasing its profit. The tax evasion, on the other hand, is a lousy attitude or, at least, is an administrative violation. It consists of non-payment of taxes, even when already verified the taxable event.

Avoidance can occur through omission of information or the provision of false statements to the farm authorities; for falsification or adulteration of duplicates, invoices and other documents of taxable operation, as well as false declarations on rents, goods or facts. Finally, they are falsifications or adulterations of documents and declarations that aim to reduce or avoid the tax burden. An example of tax evasion is when an entrepreneur does not declare a sale or service rendered as a way to avoid tax incidence. This practice, therefore, unlawful, once verified the generating fact, the sale of good or rendering of service should be levied and collected the due taxes. Evasion and avoidance differ by the moment they occur. In this sense, in tax avoidance, there is a way to avoid the generating fact (sale of good) that would represent a significant burden. In tax evasion, the occurrence of the generating event (sale of the good) is allowed, and means are sought to falsify or omit information in order to avoid or reduce the tax incidence. Thus, in the tax evasion, a company changes from a municipality to pay ISSQN with a lower rate. In tax evasion, the company remains in the same municipality but declares some services provided less than the real to pay a lower amount under ISSQN.

Finally, we can point out that they differ because the elision is a licit method and evasion of an illicit method, subject to administrative tax proceedings. In this way, it becomes more interesting for any company to seek licit means of reducing its tax burden through proper tax planning. This is because if the company promotes tax evasion, in addition to conduct that is inappropriate and harmful to the country, it can suffer from the condemnation of severe fines resulting from tax proceedings.

Tax Elision refers to the conduct of the taxpayer that aims at tax savings, relying on tax planning before the payment of taxes, using maneuvers or strategies permitted by law or gaps of this. Tax evasion is not illegal, since the taxpayer, often in the form of an administrator, respects the legal system, applying the law in order to reduce the tax letter in his budget. Based on the laws in force in different states, or even different countries, it is possible to find the most favorable ones for a company and, without infringing any, create a commercial relations structure between states and countries, in which the final result is a decrease of the tax burden. In short and to simplify: explore the gaps and make proper application of the legal text. Small, medium and gigantic companies practice tax avoidance.

Tax evasion, however, consists of maneuvers used by taxpayers to avoid paying taxes and for front-line violation of tax laws. It is pure and simple tax evasion, which is not by the law, and which is undoubtedly illegal. Tax evasion occurs, for example, where a trader decides not to declare the sales and services provided by his company not to exceed the limits of the simplified scheme. Note that in the first case the final intention is not to stop paying taxes, but rather to pay a lower tax burden. This is done through legal mechanisms and is therefore not punishable. In the second example, what is called tax evasion is being openly violated.

Tax planning refers to the planning that allows the taxpayer or the company to take advantage of tax benefits expressly provided by law. It is not about looking for loopholes in the law, but about reaping the benefits that the law offers. A good example is investments with good profitability that are exempt from IR, such as infrastructure debentures, real estate receivables certificates, among others. In this case, there was nothing illegal or unethical. Tax planning can be said to be legal, ethical and moral, because there is no malice or “misconduct,” and it is in compliance with the law in all cases. As far as tax evasion is concerned, there is no doubt that it is flagrantly illegal.

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Analysis of Tax Avoidance and Tax Planning. (2019, September 13). GradesFixer. Retrieved May 27, 2022, from
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