What is tax evasion? Thanks for asking!
Tax evasion refers to individuals, corporations, or trusts using illegal means to avoid paying tax. This could be by exploiting loopholes in the state tax system, or transferring property or business activities activity to another country with a more favourable tax regime. Meanwhile, tax avoidance, also known as tax optimisation, consists of using legitimate methods to minimise the amounts paid. Some companies and rich households do this by transferring their profits or revenues to a tax haven.
Hold on a minute - what’s a tax haven?
The OECD has been officially concerned with the matter since the 1990s. In 1998, it published an international report defining what a tax haven actually is.There are three criteria for a country to be considered as such. Firstly, a very low tax rate for companies and individuals compared to levels applied in other countries. Secondly, a lack of transparency in tax calculation. And finally, a lack of cooperation with other countries, with regards to the identities of tax declarants and the sums they declare. These fiscal laws often provide for banking secrecy, which guarantees the confidentiality of banking data, and a legal privilege which allows company owners to remain anonymous.
But why do these countries choose to have such a low tax rate? How can countries fight tax evasion then? In under 3 minutes, we answer your questions!
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