Tax Avoidance vs Tax Evasion

With the release of the Panama Papers this week, MyThinks believe it is prudent to get in touch with a tax specialist and talk with them about what the papers mean for Western governments and their collection of tax in the globalised marketplace. Professor Archibald Thief is a taxation expert who advises governments and businesses around the world on their tax obligations. He has written a briefing paper for MyThinks that will allow our readers to understand just a little bit more about international tax and global finance. 

As we move into an international global marketplace, it is prudent on governments and citizens to be more aware of how the international economy all works.

Think of the world as a giant merry-go-round. Every country is a horse. Some of those horses go up and down, some of them don’t. If you get on one that goes up and down you might be able to rip off its ear and stuff money inside it’s body before gluing the ear back on. Once you get off the merry-go-round the this money remains hidden inside the horse’s body, away from the prying eyes of other riders and the merry-go-round operator, until such time as you want to get on the ride again, retrieve your money, and buy a Mr Whippy or a Picasso.

Having read that last paragraph, I am certain that even the most lay of people will now understand international tax law and its implications for the modern economy.

If, however, you don’t, here are some brief definitions.

Tax Evasion: Where someone illegally hides their income in order avoid paying their tax obligations.

Tax Avoidance: Where someone legitimately works to minimise their tax obligations.

I realise those two definitions appear to be somewhat the same (you will see I have used the word “avoid” in my definition for “evasion” even though they are two separate things). It’s important to remember that evasion is totally illegal and avoidance is totally legal.

Another way of thinking about it is this: I avoid tax; He evades tax.

In other words, politicians, business leaders, and the ruling elite all avoid paying tax (legal), whereas tradespeople who do cash jobs, beneficiaries and the lower and middle classes all evade tax (illegal).

As I said to John Key at our last off-the-record meeting in the Bahamas, “all you have to tell the public is everything you are doing is legal. You’ll be absolutely fine. Voters love being told by their politicians that something they find repugnant is technically legal.”

I hope that has cleared a few things up. Remember, it’s not evasion if you can afford to hire an accountant to bend the law.

Kind regards,

Professor Archibald Thief.

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