Tax noncompliance

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Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the illegal non-payment of tax liabilities. [1] The use of the term "noncompliance" is used differently by different authors. [2] Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. [3] Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States. [4]

Contents

In the United States, the use of the term 'noncompliance' often refers only to illegal misreporting. [5] Laws known as a General Anti-Avoidance Rule (GAAR) statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including the United States (since 2010), [6] Canada, Australia, New Zealand, South Africa, Norway and Hong Kong. [7] In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering . Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is technically legal but not for a business purpose or in violation of the spirit of the tax code. [8] Related terms for tax avoidance include tax planning and tax sheltering.

Individuals that do not comply with tax payment include tax protesters and tax resisters. Tax protesters attempt to evade the payment of taxes using alternative interpretations of the tax law, while tax resisters refuse to pay a tax for conscientious reasons. In the United States, tax protesters believe that taxation under the Federal Reserve is unconstitutional, while tax resisters are more concerned with not paying for particular government policies that they oppose. Because taxation is often perceived as onerous, governments have struggled with tax noncompliance since the earliest of times. [9]

Differences between avoidance and evasion

Havens in countries with tax information sharing allowing for compliance enforcement declined in the 2000s. The Big 7 are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland. German GDP in tax havens.png
Havens in countries with tax information sharing allowing for compliance enforcement declined in the 2000s. The Big 7 are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland.

The use of the terms tax avoidance and tax evasion can vary depending on the jurisdiction. In general, "evasion" applies to illegal actions and "avoidance" to actions within the law. The term "mitigation" is also used in some jurisdictions to further distinguish actions within the original purpose of the relevant provision from those actions that are within the letter of the law, but do not achieve its purpose. All pursue the same immediate goal, minimising the amount paid. [11]

In particular, in the American legal system, tax evasion is a criminal action disciplined by 26 US Code §7201, [12] under which the taxpayer who fails to pay or willfully underpays his tax liability (i.e., with criminal mens rea like stated in the James v. United States) will undergo to criminal penalties. On the other side of the coin, tax avoidance happens when the taxpayer tries to lessen his tax obligation using deductions and credits to maximize after-tax income. All of this is considered legal by the IRS even though it foresees civil penalties. All things considered, the main difference between tax evasion and tax avoidance is the taxpayer's guilty mind of minimization or failure to pay the tax liability. [11]

Tax gap

The U.S. Internal Revenue Service provides formal definitions: "The gross tax gap is the difference between true tax liability for a given tax year and the amount that is paid on time. It is comprised of the nonfiling gap, the underreporting gap, and the underpayment (or remittance) gap. The net tax gap is the portion of the gross tax gap that will never be recovered through enforcement or other late payments." [13]

Underground economy and tax gap

An important way to study the tax gap is to examine the size of the tax gap in a country by analyzing the size of the underground economy and its influencing factors. The size of the underground economy is directly related to the institutional infrastructure. The institutional infrastructure of a country mainly includes the intensity of government regulation, the establishment and implementation of laws, the degree of judicial independence, the size of effective tax rates, the effective provision of public goods or services, and the effective protection of property rights. It is generally believed that the higher the level of government regulation, the greater the size of its underground economy and the greater the tax gap. And vice versa, when government over-regulation occurs, an alternative relationship exists between the size of the underground economy and the size of the official economy. Representatives of this view are Levenson, Maloney, and Johnson. [14] They believe that higher tax rates can raise higher tax revenues, and the government can provide higher levels of public services accordingly, thereby attracting more companies and individuals out of the underground economy, resulting in a healthy balance of "high tax rates, high taxes, high public services, and small-scale underground economy", but low-tax countries, because they do not have enough income to provide high levels of public services, will form a vicious balance of "low tax rates, low taxes, low public services, and high-scale underground economy." In the above-mentioned healthy balance, the tax gap is relatively small; in the vicious equilibrium, the tax gap is relatively large.

Tax customs and tax gaps

Tax custom is different from tax avoidance or tax evasion. It does not measure the taxation behavior of individuals, but the tax attitude of individuals. The tax custom can also be considered as the moral responsibility of the individual. Making a specific contribution to society by paying taxes on the government must fulfill this responsibility. It embodies the ethical code of conduct for individuals in taxation, although it does not require the form of law. The decline or deterioration of taxation practices will reduce the moral costs of taxpayers engaging in illegal operations or underground economic activities.

An empirical study by ALM [15] on transition countries such as Russia[ when? ] found that there is a strong negative relationship between tax customary variables[ clarification needed ] and underground economic size variables (which represent tax evasion or tax gaps) (correlation coefficient is -0.657). And both variables are significant[ clarification needed ] at the 1% level.

Bird believed that a sustainable and efficient tax system must be based on perceived fairness and goodwill response to taxation. It must be connected organically with the provision of public goods or services. If taxpayers see their preferences reflected in governance and see efficient provision of government services, they stay in the official economy and fulfill tax obligations. Tax revenues increase while the tax gap narrows. [16]

The economic experiments cited by Torgler and Schaltegger [17] show that the extensive exercise of voting rights in tax affairs will significantly increase taxpayer compliance. The deeper the taxpayer participates in political decision making, the higher the tax contract performance efficiency and tax compliance. The taxpayer society in this state is a civil society with tax and good customs, and the taxpayer is a real citizen who has been given a wide range of powers.

Everest Phillips [18] believes that the design of a reasonable and effective tax system is an important part of the construction in a country. The operation of this tax system must be based on the higher compliance of taxpayers and the goodness of taxation rather than relying on coercive measures. He pointed out that as the country's tax system for building important content must have the following five important characteristics:

  1. Political participation. The wide participation of taxpayers in the political decision-making process is an important guarantee for establishing social taxation and good customs. When taxpayers lack effective access to decision-making, they will be concerned about tax revenue collection and the lack of efficiency in the provision of public goods or services. Tax compliance will be reduced, and taxation practices are likely to deteriorate. As a result, tax evasion scale will expand and tax gaps will increase. This situation will further weaken the ability of government to provide public goods or services, and thus trap the construction process into a vicious cycle.
  2. Responsibility and transparency. The government should have a legitimate duty to use tax revenues, and procedures for providing public goods or services should be transparent to taxpayers.
  3. Perceivable fairness. In a reasonable and effective tax system, taxpayers can perceive themselves as being treated equally and justly. With regard to tax incentives or tax exemptions, if taxpayers perceive that they are being treated unfairly, their tax willingness will inevitably decline.
  4. Effectiveness. The government should have the ability to transform gradually increasing tax revenues into higher levels of public goods or services and enhance political stability.
  5. Sharing a prosperous political commitment. The national taxation system should be closely linked with the national goal of promoting economic growth. Promoting economic growth is one of the strategic goals that the government has promised to taxpayers. The government can promote the realization of this strategic goal through taxation.

Tax collection management efficiency and tax gap

U.S. Treasury Department estimates of unpaid taxes indicate that over half of all unpaid taxes are attributable to the top 5% of earners. 20220826 Share of unpaid taxes, by income level - area chart, treemap - NYTimes - Dept of Treasury.svg
U.S. Treasury Department estimates of unpaid taxes indicate that over half of all unpaid taxes are attributable to the top 5% of earners.

Under the premise of economic development level, the ability of a country to raise tax revenue is mainly determined by the tax system design in the country and the efficiency of its collection and management. From the perspective of taxation practices in various countries, the design of taxation system is affected and restricted by the efficiency of tax collection and management. Therefore, it can be said that the relative size of a country's tax revenue collection and tax gap is closely related to the tax collection and management efficiency of the s tax administration agencies in the country.

A reasonable explanation for the introduction of value-added tax by most developing countries in the world is to increase the taxpayer's compliance with tax payment through the mutual supervision mechanism between taxpayers without increasing the cost imposed by the tax administration authorities. This consideration for the factors of taxation determines that developing countries can only adopt the tax system that is mainly based on turnover tax. From the perspective of taxation, due to restrictions on the level of taxation in developing countries, tax revenues can only be raised through indirect taxes that focus on taxes such as value-added tax and consumption tax, while direct taxes represented by income taxes and property taxes are included in total tax revenue. The proportion is relatively low. Bird and Zolt [20] pointed out that, contrary to the practice of taxation in developed countries, personal income tax still plays a very limited role in developing countries today, both in terms of income mobilization and adjustment of income disparities. In 2000, the income tax income of developed countries was 53.8% of total income, compared with 28.3% in developing countries. They believe that wages and other income of workers in the informal sector in developing countries are still free from tax collection. The same is true of the property tax situation. Due to the lack of necessary information and assessment mechanisms for the assessment of property values, property taxes cannot be successfully implemented in many developing countries; even if developing countries with property taxes exist, their income collection is still insufficient. From the above analysis, we can see that compared with indirect taxes, developing countries still have a large tax gap in terms of direct taxes.

Tax protesters and tax resisters

Some tax evaders believe that they have uncovered new interpretations of the law that show that they are not subject to being taxed (not liable): these individuals and groups are sometimes called tax protesters. Many protesters continue posing the same arguments that the federal courts have rejected time and time again, ruling the arguments to be legally frivolous.

Tax resistance is the refusal to pay a tax for conscientious reasons (because the resister finds the government or its actions morally reprehensible). They typically do not find it relevant whether that the tax laws are themselves legal or illegal or whether they apply to them, and they are more concerned with not paying for what they find to be grossly immoral, such as the bombing of innocents.

United States

Tax campaigner Richard Murphy's estimate of the ten countries with the largest absolute levels of tax evasion. He estimated that global tax evasion amounts to 5 percent of the global economy. Countries with Largest Tax Evasion Amount v3.jpg
Tax campaigner Richard Murphy's estimate of the ten countries with the largest absolute levels of tax evasion. He estimated that global tax evasion amounts to 5 percent of the global economy.

In the United States "tax evasion" is evading the assessment or payment of a tax that is already legally owed at the time of the criminal conduct. [22] Tax evasion is criminal, and has no effect on the amount of tax actually owed, although it may give rise to substantial monetary penalties.

By contrast, the term "tax avoidance" describes lawful conduct, the purpose of which is to avoid the creation of a tax liability in the first place. Whereas an evaded tax remains a tax legally owed, an avoided tax is a tax liability that has never existed.

For example, consider two businesses, each of which have a particular asset (in this case, a piece of real estate) that is worth far more than its purchase price.

In the above example, tax may or may not eventually be due when the second property is sold. Whether and how much tax will be due will depend on circumstances and the state of the law at the time.

Definition of tax evasion in the United States

The application of the U.S. tax evasion statute may be illustrated in brief as follows. The statute is Internal Revenue Code section 7201:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution. [23]

Under this statute and related case law, the prosecution must prove, beyond a reasonable doubt, each of the following three elements:

  1. the "attendant circumstance" of the existence of a tax deficiency – an unpaid tax liability; and
  2. the actus reus (i.e., guilty conduct) – an affirmative act (and not merely an omission or failure to act) in any manner constituting evasion or an attempt to evade either:
    1. the assessment of a tax, or
    2. the payment of a tax.
  3. the mens rea or "mental" element of willfulness – the specific intent to violate an actually known legal duty. [24]

An affirmative act "in any manner" is sufficient to satisfy the third element of the offense. That is, an act which would otherwise be perfectly legal (such as moving funds from one bank account to another) could be grounds for a tax evasion conviction (possibly an attempt to evade payment), provided the other two elements are also met. Intentionally filing a false tax return (a separate crime in itself) [25] could constitute an attempt to evade the assessment of the tax, as the Internal Revenue Service bases its initial assessment (i.e., the formal recordation of the tax on the books of the U.S. Treasury) on the tax amount shown on the return.

Application to tax protesters

The federal tax evasion statute is an example of an exception to the general rule under U.S. law that "ignorance of the law or a mistake of law is no defense to criminal prosecution". [26] Under the Cheek Doctrine ( Cheek v. United States ), [27] the United States Supreme Court ruled that a genuine, good faith belief that one is not violating the federal tax law (such as a mistake based on a misunderstanding caused by the complexity of the tax law itself) would be a valid defense to a charge of "willfulness" ("willfulness" in this case being knowledge or awareness that one is violating the tax law itself), even though that belief is irrational or unreasonable. On the surface, this rule might appear to be of some comfort to tax protesters who assert, for example, that "wages are not income." [28]

However, merely asserting that one has such a good faith belief is not determinative in court; under the American legal system the trier of fact (the jury, or the trial judge in a non-jury trial) decides whether the defendant really has the good faith belief he or she claims. With respect to willfulness, the placing of the burden of proof on the prosecution is of limited utility to a defendant that the jury simply does not believe.

A further stumbling block for tax protesters is found in the Cheek Doctrine with respect to arguments about "constitutionality." Under the Doctrine, the belief that the Sixteenth Amendment was not properly ratified and the belief that the federal income tax is otherwise unconstitutional are not treated as beliefs that one is not violating the "tax law" – i.e., these errors are not treated as being caused by the "complexity of the tax law."

In the Cheek case the Court stated:

Claims that some of the provisions of the tax code are unconstitutional are submissions of a different order. They do not arise from innocent mistakes caused by the complexity of the Internal Revenue Code. Rather, they reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable. Thus, in this case, Cheek paid his taxes for years, but after attending various seminars and based on his own study, he concluded that the income tax laws could not constitutionally require him to pay a tax.

The Court continued:

We do not believe that Congress contemplated that such a taxpayer, without risking criminal prosecution, could ignore the duties imposed upon him by the Internal Revenue Code and refuse to utilize the mechanisms provided by Congress to present his claims of invalidity to the courts and to abide by their decisions. There is no doubt that Cheek, from year to year, was free to pay the tax that the law purported to require, file for a refund and, if denied, present his claims of invalidity, constitutional or otherwise, to the courts. See 26 U.S.C. 7422. Also, without paying the tax, he could have challenged claims of tax deficiencies in the Tax Court, 6213, with the right to appeal to a higher court if unsuccessful. 7482(a)(1). Cheek took neither course in some years, and, when he did, was unwilling to accept the outcome. As we see it, he is in no position to claim that his good-faith belief about the validity of the Internal Revenue Code negates willfulness or provides a defense to criminal prosecution under 7201 and 7203. Of course, Cheek was free in this very case to present his claims of invalidity and have them adjudicated, but, like defendants in criminal cases in other contexts who "willfully" refuse to comply with the duties placed upon them by the law, he must take the risk of being wrong. [29]

The Court ruled that such beliefs – even if held in good faith – are not a defense to a charge of willfulness. By pointing out that arguments about constitutionality of federal income tax laws "reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable", the Supreme Court may have been impliedly warning that asserting such "constitutional" arguments (in open court or otherwise) might actually help the prosecutor prove willfulness. [30] Daniel B. Evans, a tax lawyer who has written about tax protester arguments, has stated that

if you plan ahead to use it [the Cheek defense], then it is almost certain to fail, because your efforts to establish your "good faith belief" are going to be used by the government as evidence that you knew that what you were doing was wrong when you did it, which is why you worked to set up a defense in advance. Planning not to file tax returns and avoid prosecution using a "good faith belief" is kind of like planning to kill someone using a claim of "self-defense". If you've planned in advance, then it shouldn't work. [31]

By contrast, under Canadian law, the honesty of a taxpayer in expressing his beliefs can be a mitigating factor in sentencing. In R. v. Klundert , 2011 ONCA 646, the Ontario Court of Appeal upheld a tax protestor's conviction, but allowed him to serve a conditional sentence in the community on the grounds that his behaviour was neither fraudulent nor deceitful. The one-year custodial sentence imposed by the trial judge was overturned on this basis:

[23] He went on to hold that, while deceit or fraud may be an aggravating factor, the absence of such features does not create a mitigating factor. While that may be an acceptable general rule of sentencing, the absence of deceit or fraud can nevertheless be a factor in deciding whether or not a conditional sentence is warranted. To the extent the trial judge did consider the appellant's low level of deceit, if any, and lack of fraud, it was not fairly emphasized in his reasons and amounts to error.

Failing to file returns in the United States

According to some estimates, about three percent of American taxpayers do not file tax returns at all.[ citation needed ] In the case of U.S. federal income taxes, civil penalties for willful failure to timely file returns and willful failure to timely pay taxes are based on the amount of tax due; thus, if no tax is owed, no penalties are due. [32] The civil penalty for willful failure to timely file a return is generally equal to 5.0% of the amount of tax "required to be shown on the return per month, up to a maximum of 25%. [33]

In cases where a taxpayer does not have enough money to pay the entire tax bill, the IRS can work out a payment plan with taxpayers, or enter into a collection alternative such as a partial payment Installment Agreement, an Offer in Compromise, placement into hardship or "currently non-collectable" status or file bankruptcy.

For years for which no return has been filed, there is no statute of limitations on civil actions – that is, on how long the IRS can seek taxpayers and demand payment of taxes owed. [34] [ non-primary source needed ]

For each year a taxpayer willfully fails to timely file an income tax return, the taxpayer can be sentenced to one year in prison. [35] In general, there is a six-year statute of limitations on federal tax crimes. [36]

The IRS has run several Overseas Voluntary Disclosure Programs in 2009 and 2011, and its current one has "no set deadline for taxpayers to apply. However, the terms of this program could change at any time going forward.". [37]

By contrast, the civil penalty for failure to timely pay the tax actually "shown on the return" is generally equal to 0.5% of such tax due per month, up to a maximum of 25%. [38] The two penalties are computed together in a relatively complex algorithm, and computing the actual penalties due is somewhat challenging.

United Kingdom

Poster issued by the British tax authorities to counter offshore tax evasion HMRC offshore evasion poster February 2014.jpg
Poster issued by the British tax authorities to counter offshore tax evasion

The United Kingdom and jurisdictions following the UK approach (such as New Zealand) have recently adopted the evasion/avoidance terminology as used in the United States: evasion is a criminal attempt to avoid paying tax owed while avoidance is an attempt to use the law to reduce taxes owed. There is, however, a further distinction drawn between tax avoidance and tax mitigation. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of Parliament: IRC v Willoughby. [39]

Tax mitigation is conduct which reduces tax liabilities without "tax avoidance" (not contrary to the intention of Parliament), for instance, by gifts to charity or investments in certain assets which qualify for tax relief. This is important for tax provisions which apply in cases of "avoidance": they are held not to apply in cases of mitigation.

The clear articulation of the concept of an avoidance/mitigation distinction goes back only to the 1970s. The concept originated from economists, not lawyers. [40] The use of the terminology avoidance/mitigation to express this distinction was an innovation in 1986: IRC v Challenge. [41]

The difference between tax avoidance and tax evasion is the thickness of a prison wall.

Denis Healey, The Economist, Volume 354, p. 186

In practice, the distinction is sometimes clear, but often difficult to draw. Relevant factors to decide whether conduct is avoidance or mitigation include: whether there is a specific tax regime applicable; whether transactions have economic consequences; confidentiality; tax linked fees. Important indicia are familiarity and use. Once a tax avoidance arrangement becomes common, it is almost always stopped by legislation within a few years. If something commonly done is contrary to the intention of Parliament, it is only to be expected that Parliament will stop it.

So that which is commonly done and not stopped is not likely to be contrary to the intention of Parliament. It follows that tax reduction arrangements which have been carried on for a long time are unlikely to constitute tax avoidance. Judges have a strong intuitive sense that that which everyone does, and has long done, should not be stigmatised with the pejorative term of "avoidance". Thus UK courts refused to regard sales and repurchases (known as bed-and-breakfast transactions) or back-to-back loans as tax avoidance.

Other approaches in distinguishing tax avoidance and tax mitigation are to seek to identify "the spirit of the statute" or "misusing" a provision. But this is the same as the "evident intention of Parliament" properly understood. Another approach is to seek to identify "artificial" transactions. However, a transaction is not well described as "artificial" if it has valid legal consequences, unless some standard can be set up to establish what is "natural" for the same purpose. Such standards are not readily discernible. The same objection applies to the term "device".

It may be that a concept of "tax avoidance" based on what is contrary to "the intention of Parliament" is not coherent. The object of construction of any statute is expressed as finding "the intention of Parliament". In any successful tax avoidance scheme, a Court must have concluded that the intention of Parliament was not to impose a tax charge in the circumstances which the tax avoiders had placed themselves. The answer is that the expression "intention of Parliament" is being used in two senses.

It is perfectly consistent to say that a tax avoidance scheme escapes tax (there being no provision to impose a tax charge) and yet constitutes the avoidance of tax. One is seeking the intention of Parliament at a higher, more generalised level. A statute may fail to impose a tax charge, leaving a gap that a court cannot fill even by purposive construction, but nevertheless one can conclude that there would have been a tax charge had the point been considered. An example is the notorious UK case Ayrshire Employers Mutual Insurance Association v IRC, [42] where the House of Lords held that Parliament had "missed fire".

History of avoidance/evasion distinction

An avoidance/evasion distinction along the lines of the present distinction has long been recognised but at first there was no terminology to express it. In 1860 Turner LJ suggested evasion/contravention (where evasion stood for the lawful side of the divide): Fisher v Brierly. [43] In 1900 the distinction was noted as two meanings of the word "evade": Bullivant v AG. [44] The technical use of the words avoidance/evasion in the modern sense originated in the US where it was well established by the 1920s. [45] It can be traced to Oliver Wendell Holmes in Bullen v. Wisconsin . [46]

It was slow to be accepted in the United Kingdom. By the 1950s, knowledgeable and careful writers in the UK had come to distinguish the term "tax evasion" from "avoidance". However, in the UK at least, "evasion" was regularly used (by modern standards, misused) in the sense of avoidance, in law reports and elsewhere, at least up to the 1970s. Now that the terminology has received official approval in the UK (Craven v White) [47] this usage should be regarded as erroneous. But even now it is often helpful to use the expressions "legal avoidance" and "illegal evasion", to make the meaning clearer.

UK tax gap

HMRC estimated tax gaps 2005-2019 HMRC estimated tax gaps 2005-2014.png
HMRC estimated tax gaps 2005–2019

The UK "tax gap" is the difference between the amount of tax that should, in theory, be collected by the tax collection agency HMRC, against what is actually collected. The tax gap for the UK in 2018/19 was £31 billion, or 4.7% of total tax liabilities. [48]

UK tax resistors

In the UK case of Cheney v. Conn, [49] an individual objected to paying tax that, in part, would be used to procure nuclear arms in unlawful contravention, he contended, of the Geneva Convention. His claim was dismissed, the judge ruling that "What the [taxation] statute itself enacts cannot be unlawful, because what the statute says and provides is itself the law, and the highest form of law that is known to this country."

France

France can be considered as having an average level of the European fiscal evasion (in terms of percentage of GDP) but in the upper ranks of the absolute level due to its high GDP. Indeed, the state budget is slashed by more than 160 billion euros every year (80 billion is slashed due to fiscal evasion and another 80 billion due to the abuse of social protection[ clarification needed ]). The fiscal evasion is equivalent to 3% [50] of the French GDP and the social protection is another 3%. In total, the French government is slashed of 6% of the country's GDP. [51]

Europe

Richard Murphy, a professor in Public Policy at City, University of London, produced the following estimates of the tax gap in different European countries. [52]

CountryTax gap
(billion €)
Tax gap
per GDP (%)
Tax gap
as a proportion of the
health care budget (%)
Flag of Italy.svg  Italy 190,923,28172,3
Flag of Germany.svg  Germany 125,110,1044,0
Flag of France.svg  France 117,911,0961,0
Flag of the United Kingdom.svg  United Kingdom 87,59,6343,1
Flag of Spain.svg  Spain 60,014,7185,4
Flag of Poland.svg  Poland 34,621,66181,0
Flag of Belgium (civil).svg  Belgium 30,414,9993,5
Flag of the Netherlands.svg  Netherlands 22,28,2938,5
Flag of Greece.svg  Greece 19,926,11235,7
Flag of Denmark.svg  Denmark 17,512,8474,2
Flag of Sweden.svg  Sweden 16,98,0740,9
Flag of Romania.svg  Romania 16,229,51262,0
Flag of Austria.svg  Austria 12,98,2548,7
Flag of Portugal.svg  Portugal 11,016,09103,1
Flag of Finland.svg  Finland 10,710,9269,8
Flag of Hungary.svg  Hungary 9,118,78171,7
Flag of the Czech Republic.svg  Czech Republic 8,814,1587,6
Flag of Ireland.svg  Ireland 6,910,5749,7
Flag of Slovakia.svg  Slovakia 5,418,52125,0
Flag of Bulgaria.svg  Bulgaria 3,824,20197,6
Flag of Croatia.svg  Croatia 3,518,43139,9
Flag of Lithuania.svg  Lithuania 3,124,36187,4
Flag of Slovenia.svg  Slovenia 2,616,28109,8
Flag of Latvia.svg  Latvia 1,720,03214,6
Flag of Cyprus.svg  Cyprus 1,621,61302,9
Flag of Luxembourg.svg  Luxembourg 1,67,9860,7
Flag of Estonia.svg  Estonia 1,416,99135,4
Flag of Malta.svg  Malta 0,925,42-

See also

By region

General

Related Research Articles

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with tax evasion, which is illegal. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system.

<span class="mw-page-title-main">Taxpayer</span> Person or organization subject to pay a tax

A taxpayer is a person or organization subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms.

Double taxation is the levying of tax by two or more jurisdictions on the same income, asset, or financial transaction.

Although the actual definitions vary between jurisdictions, in general, a direct tax or income tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect tax depending on whether the tax payer is the actual taxpayer or if the amount of tax is supported by a third party, usually a client. The term may be used in economic and political analyses, but does not itself have any legal implications. However, in the United States, the term has special constitutional significance because of a provision in the U.S. Constitution that any direct taxes imposed by the national government be apportioned among the states on the basis of population. In the European Union direct taxation remains the sole responsibility of member states.

Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, using bribes against authorities in countries with high corruption rates and hiding money in secret locations.

<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

Cheek v. United States, 498 U.S. 192 (1991), was a United States Supreme Court case in which the Court reversed the conviction of John L. Cheek, a tax protester, for willful failure to file tax returns and tax evasion. The Court held that an actual good-faith belief that one is not violating the tax law, based on a misunderstanding caused by the complexity of the tax law, negates willfulness, even if that belief is irrational or unreasonable. The Court also ruled that an actual belief that the tax law is invalid or unconstitutional is not a good faith belief based on a misunderstanding caused by the complexity of the tax law, and is not a defense.

James v. United States, 366 U.S. 213 (1961), was a case in which the United States Supreme Court held that the receipt of money obtained by a taxpayer illegally was taxable income even though the law might require the taxpayer to repay the ill-gotten gains to the person from whom they had been taken.

Gregory v. Helvering, 293 U.S. 465 (1935), was a landmark decision by the United States Supreme Court concerned with U.S. income tax law. The case is cited as part of the basis for two legal doctrines: the business purpose doctrine and the doctrine of substance over form. The business purpose doctrine is essentially that if a transaction has no substantial business purpose other than the avoidance or reduction of Federal tax, the tax law will not regard the transaction. The doctrine of substance over form is essentially that for Federal tax purposes, a taxpayer is bound by the economic substance of a transaction if the economic substance varies from its legal form.

A tax protester, in the United States, is a person who denies that he or she owes a tax based on the belief that the Constitution of the United States, statutes, or regulations do not empower the government to impose, assess or collect the tax. The tax protester may have no dispute with how the government spends its revenue. This differentiates a tax protester from a tax resister, who seeks to avoid paying a tax because the tax is being used for purposes with which the resister takes issue.

<i>America: Freedom to Fascism</i> 2006 American film

America: Freedom to Fascism is a 2006 American film by filmmaker and activist Aaron Russo, covering a variety of subjects that Russo contends are detrimental to Americans. Topics include the Internal Revenue Service (IRS), the income tax, Federal Reserve System, national ID cards, human-implanted RFID tags, Diebold electronic voting machines, globalization, Big Brother, taser weapons abuse, and the use of terrorism by the government as a means to diminish the citizens' rights.

Tax protesters in the United States have advanced a number of arguments asserting that the assessment and collection of the federal income tax violates statutes enacted by the United States Congress and signed into law by the President. Such arguments generally claim that certain statutes fail to create a duty to pay taxes, that such statutes do not impose the income tax on wages or other types of income claimed by the tax protesters, or that provisions within a given statute exempt the tax protesters from a duty to pay.

<span class="mw-page-title-main">Corporate tax in the United States</span>

Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% following the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.

Tommy Keith Cryer, also known as Tom Cryer, was an attorney in Shreveport, Louisiana who was charged with and later acquitted of willful failure to file U.S. Federal income tax returns in a timely fashion. In a case in United States Tax Court, Cryer contested a determination by the U.S. Internal Revenue Service that he owed $1.7 million in taxes and penalties. Before the case could come to trial, Cryer died June 4, 2012. He was 62.

The 861 argument is a statutory argument used by tax protesters in the United States, which interprets a portion of the Internal Revenue Code as invalidating certain applications of income tax. The argument has uniformly been held by courts to be incorrect, and persons who have cited the argument as a basis for refusing to pay income taxes have been penalized, and in some cases jailed.

Tax protesters in the United States advance a number of constitutional arguments asserting that the imposition, assessment and collection of the federal income tax violates the United States Constitution. These kinds of arguments, though related to, are distinguished from statutory and administrative arguments, which presuppose the constitutionality of the income tax, as well as from general conspiracy arguments, which are based upon the proposition that the three branches of the federal government are involved together in a deliberate, on-going campaign of deception for the purpose of defrauding individuals or entities of their wealth or profits. Although constitutional challenges to U.S. tax laws are frequently directed towards the validity and effect of the Sixteenth Amendment, assertions that the income tax violates various other provisions of the Constitution have been made as well.

A tax protester is someone who refuses to pay a tax claiming that the tax laws are unconstitutional or otherwise invalid. Tax protesters are different from tax resisters, who refuse to pay taxes as a protest against a government or its policies, or a moral opposition to taxation in general, not out of a belief that the tax law itself is invalid. The United States has a large and organized culture of people who espouse such theories. Tax protesters also exist in other countries.

Tax protester arguments are arguments made by people, primarily in the United States, who contend that tax laws are unconstitutional or otherwise invalid.

Tax protesters in the United States advance a number of administrative arguments asserting that the assessment and collection of the federal income tax violates regulations enacted by responsible agencies –primarily the Internal Revenue Service (IRS)– tasked with carrying out the statutes enacted by the United States Congress and signed into law by the President. Such arguments generally include claims that the administrative agency fails to create a duty to pay taxes, or that its operation conflicts with some other law, or that the agency is not authorized by statute to assess or collect income taxes, to seize assets to satisfy tax claims, or to penalize persons who fail to file a return or pay the tax.

<span class="mw-page-title-main">Tax evasion in the United States</span>

Under the federal law of the United States of America, tax evasion or tax fraud, is the purposeful illegal attempt of a taxpayer to evade assessment or payment of a tax imposed by Federal law. Conviction of tax evasion may result in fines and imprisonment. Compared to other countries, Americans are more likely to pay their taxes on time and law-abidingly.

References

  1. Michael Wenzel (2002). "The Impact of Outcome Orientation and Justice Concerns on Tax Compliance" (PDF). Journal of Applied Psychology: 4–5. When taxpayers try to find loopholes with the intention to pay less tax, even if technically legal, their actions may be against the spirit of the law and in this sense considered non-compliant. The present research will deal with both evasion and avoidance and, based on the premise that either is unfavorable to the tax-system and uncooperative towards the collective, subsume both under the concept of tax noncompliance.{{cite journal}}: Cite journal requires |journal= (help)
  2. Dyreng SD, Hanlon M, Maydew EL. (2008). Noncom Long-run corporate tax avoidance. The Accounting Review.
  3. Feige, Edgar L. (2016). "The Meaning and Measurement of Unobserved Economies: What do we really know about the "Shadow Economy"?". Journal of Tax Administration (30/1).
  4. Feige, Edgar L. (2012). pp 265–85. "America's Unreported Economy:Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S.". Crime, Law and Social Change (57/3).
  5. For example, see: GAO. (2012). Sources of Noncompliance and Strategies to Reduce It. GAO-12-651T.
  6. Prebble R, Prebble J. (2010). Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law?. Saint Louis University Law Journal.
  7. UK’s general anti-avoidance rule process on schedule. T Magazine.
  8. For example, a Canadian organization describes Canada's law, first passed in 1988 in Section 245 of the Canada's federal income tax act (described here ), as invalidating the tax consequences of a tax avoidance transaction if "not conducted for any primary purpose other than to obtain a tax benefit".
  9. David F. Burg (2004). A World History of Tax Rebellions. pp. vi–viii. ISBN   9780203500897.
  10. Shafik Hebous (2011) "Money at the Docks of Tax Havens: A Guide", CESifo Working Paper Series No. 3587, p. 9
  11. 1 2 George S.K. "The Fine (and Hazy) Line between Tax Avoidance and Tax Evasion". 5 Ct. Uncourt 19.
  12. "26 U.S. Code § 7201 - Attempt to evade or defeat tax".
  13. "The Tax Gap". irs.gov. U.S. Internal Revenue Service. 2019. Archived from the original on July 29, 2022.
  14. Levenson,Maloney.Modeling the Informal Sector:Theory and Empirical Evidence from Mexico[R].Unpublished Manuscript1,996.
  15. James Alm. Russian Attitudes Toward Paying Taxes-Before, During and After the Transition [J]. International Journal of Social Economics, 2006 3,3.
  16. Bird, Martinez-Vazquez,Torgler. The Challenges of Tax Reform in the Global Economy [M]. New York: Springer, 2006.
  17. Torgler, Schneider, Schaltegger. Local Autonomy, Tax Morale and the Shadow Economy[C]. School of Economics and Finance Discussion Papers and Working Papers Series 243, Queensland University of Technology, 2009.
  18. Everest-Phillips, M. Business Tax as State-building in Developing Countries: Applying Governance Principles in Private Sector Development[J]. International Journal of Regulation and Governance, 20088,(2).
  19. Lopez, German; Wu, Ashley (August 26, 2022). "Conspiracy Theories / How more funding for the I.R.S. became a political firestorm". The New York Times. Archived from the original on August 26, 2022. Source: U.S. Department of Treasury; Estimates from 2019
  20. Bird,Richard,Zolt.Redistribution Via Taxation:The Limited Role of the Personal Income Tax in Developing Countries[J].UCLA Law Review,20055,2(6).
  21. Johnston, David Cay. "Where's the fraud, Mr. President? | David Cay Johnston". Blogs.reuters.com. Archived from the original on 2012-01-07. Retrieved 2013-07-03.
  22. The term "assessment" is here used in the technical sense of a statutory assessment: the formal administrative act of a duly appointed employee of the Internal Revenue Service who records the tax on the books of the United States Treasury after certain administrative prerequisites have been met. The term "assessment" has a separate, non-statutory meaning in the United States, viz. the act of the taxpayer computing the amount of the tax when preparing and filing a federal income tax return.
  23. 26 U.S.C.   § 7201. For an individual, the $100,000 fine prescribed in this statute can be increased to a maximum of $250,000. See subsection (b), paragraph (3) of 18 U.S.C.   § 3571.
  24. See generally Steven R. Toscher, J.D., Dennis L. Perez, J.D., Charles P. Rettig, J.D., LL.M. & Edward M. Robbins, Jr., J.D., LL.M., Tax Crimes, U.S. Income Portfolios, Vol. 636 (3rd ed. 2012), Bloomberg BNA.
  25. 26 U.S.C.   § 7206.
  26. Ignorantia legis neminem excusat, or "ignorance of law excuses no one". Black's Law Dictionary, p. 673 (5th ed. 1979).
  27. 498 U.S. 192 (1991).
  28. The U.S. courts have consistently rejected arguments that "wages" or "labor" are not taxable as income under the Internal Revenue Code. For example, see United States v. Connor, 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990) (tax evasion conviction under 26 U.S.C.   § 7201 affirmed by the United States Court of Appeals for the Third Circuit; taxpayer’s argument – that because of the Sixteenth Amendment, wages were not taxable – was rejected by the Court; taxpayer’s argument that an income tax on wages is required to be apportioned by population also rejected); Perkins v. Commissioner, 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984) (26 U.S.C.   § 61 ruled by the United States Court of Appeals for the Sixth Circuit to be "in full accordance with Congressional authority under the Sixteenth Amendment to the Constitution to impose taxes on income without apportionment among the states"; taxpayer's argument that wages paid for labor are non-taxable was rejected by the Court, and ruled frivolous); White v. United States, 2005-1 U.S. Tax Cas. (CCH) paragr. 50,289 (6th Cir. 2004), cert. denied, ____ U.S. ____ (2005) (taxpayer’s argument that wages are not taxable was ruled frivolous by the United States Court of Appeals for the Sixth Circuit; penalty – imposed under 26 U.S.C.   § 6702 for filing tax return with frivolous position – was therefore proper); Granzow v. Commissioner, 739 F.2d 265, 84-2 U.S. Tax Cas. (CCH) paragr. 9660 (7th Cir. 1984) (taxpayer’s argument that wages are not taxable was rejected by the United States Court of Appeals for the Seventh Circuit, and ruled frivolous); Waters v. Commissioner, 764 F.2d 1389, 85-2 U.S. Tax Cas. (CCH) paragr. 9512 (11th Cir. 1985) (taxpayer’s argument that income taxation of wages is unconstitutional was rejected by the United States Court of Appeals for the Eleventh Circuit; taxpayer required to pay damages for filing frivolous suit).
  29. Cheek, 498 U.S. at 205–206 (footnote omitted; emphasis added).
  30. See also Spies v. United States , 317 U.S. 492 (1943); Sansone v. United States , 380 U.S. 343 (1965); Cheek v. United States, 498 U.S. 192 (1991).
  31. "Daniel B. Evans, The Tax Protester FAQ; downloaded 24 April 2007". Evans-legal.com. Retrieved 2013-07-03.
  32. See 26 U.S.C.   § 6651.
  33. See 26 U.S.C.   § 6651(a)(1).
  34. See 26 U.S.C.   § 6501.
  35. See 26 U.S.C.   § 7203.
  36. See 26 U.S.C.   § 6531.
  37. "Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers". 2012-06-26. Retrieved 2014-01-29.
  38. See 26 U.S.C.   § 6651(a)(2).
  39. 70 TC 57.
  40. See for instance CT Sandford, Hidden Costs of Taxation, IFS, 1973.
  41. (1986) STC 548.
  42. 27 TC 331.
  43. (1860) 1 de G F&J 643 (England).
  44. (1901) AC 196 (England).
  45. Minimising Taxes, Sears, 1922, Vernon Law Book Co.
  46. 240 U.S. 625 (1916), 630.
  47. (1988) 62 TC 1 at 197.
  48. "Measuring tax gaps 2018 edition" (PDF).
  49. (1968) All ER 779.
  50. "La fraude fiscale coûterait jusqu'à 80 milliards d'euros à l'Etat". Le Monde.fr. 22 January 2013.
  51. "PIB - Croissance | Insee". www.insee.fr. Retrieved 2020-10-27.
  52. "The European Tax Gap" (PDF). Richard Murphy. January 2019.