How Society Combats Corporate Tax Avoidance

Tax avoidance is using legally permitted measures to pay the lowest amount of money possible. Avoidance is different than tax evasion. Tax evasion involves a corporation resorting to illegal activities to pay fewer taxes. Tax avoidance causes governments to lose over $170 billion in lost revenue each year, but what’s being done against this?

What Does Tax Avoidance Involve?

Although tax avoidance involves legal actions, public opinion sees such avoidance as unethical. Corporations which take part in tax avoidance receive backlash from once loyal customers and user communities online. Methods of tax avoidance include manipulating the company’s country of residence, legal entities, tax shelters, or transfer mispricing. Both tax evasion and some forms of tax avoidance can be seen as tax noncompliance.

What Is Being Done?

Since tax avoidance greatly reduces government revenue, many countries are framing tax rules to lessen the scope of avoidance. Australia, Canada, New Zealand, South Africa and Norway are just some of the countries to introduce the “General Anti-Avoidance Rules” also known as GAAR. In the United States, the Internal Revenue Service (IRS) helps determine which corporate schemes are abusing the system. US Court case Gregory v. Helvering helped to establish judicial doctrines which assist in this area.

Final Thoughts

Tax avoidance is considered by the public as dodging one’s obligations toward society. When big corporations perform tax avoidances, it is the citizens who suffer the consequences. In the last few years, there has been an increased government response to avoidances and this will only continue to grow in the future.

Image credit: Anthony Easton