Tax avoidance VS Tax evasion
[embedyt] https://www.youtube.com/watch?v=rZShp-dmTcE[/embedyt]
Lots of people have misunderstandings when it comes to terms tax avoidance and tax evasion. They are not really certain whether those are synonyms or not.
Let’s make it clear – Tax avoidance and tax evasion are two different things!
Tax avoidance is fine, it is completely legal while tax evasion is not.
You will also be able to hear term ‘’aggressive tax planning’’ which is not a legal but a marketing term.
Tax evasion is when you misreport what is going on for you. If you made let’s say a million dollars, but you reported 500k you did tax evasion. In other words, you lied to the tax department. In most of the world this can land you in prison. As we already mentioned this is completely illegal and it’s something that you should never do.
However, back at the time it wasn’t a crime to do tax evasion. Lots of people were coming up with strategies to do it and were doing just fine. Swiss banks didn’t share any information with the US government because of the strict secrecy policies they had back at the time, also tax evasion wasn’t considered a crime in Switzerland. So, if you were an American keeping your money in Swiss banks nobody was able to come after you. In 2009. the US government attacked UBS which is the largest Swiss bank. They put a lot of pressure and they managed to break the famous Swiss bank secrecy. 2011. Credit Swiss settled with them as well, and in 2013. around 200 Swiss banks settled with these US government regulations.
This was pretty catastrophic event for the bank secrecy policies around the world. It was the beginning of the end.
Since then, you had FATCA that came in, and after that came reporting standards and automatic exchange of information.
Today, information is proactively shared with the government from your country.
Because of all this it made sense to start considering tax evasion as a serious crime. It became hard and not worth it.
This is the big reason why we preach that business owners should figure out their tax situation on time. It can be done legally, safely and it can save you lots of money.
Remember, you might be able to get away with tax evasion once or twice, but things are getting harder and harder and you don’t want to be doing it. At this point of time it’s playing with fire.
See about asset protection here
Tax planning is the process in figuring out the best possible scenario for you and your business so you end up paying way less tax. This is tax avoidance. Tax avoidance is completely legal.
