Tax Avoidance

Avoidance ranges from ordinary planning, such as using allowances and reliefs the law offers, to aggressive schemes with no commercial purpose other than a tax saving. The first is accepted. The second is often called aggressive tax planning and can be challenged under general anti-avoidance rules, which let a tax authority disregard arrangements whose main aim is to obtain a tax benefit. The line is set by each country's law and courts, and what is acceptable in one place can be attacked in another. Evasion, by contrast, involves lying or hiding facts and is a crime. Compliance teams meet the issue when advising on structures, reviewing clients who use complex arrangements and assessing reputational risk. Avoidance is not usually a predicate offence for money laundering. Advisers use the boundary with evasion to decide whether a structure is a lawful choice or a legal exposure.

A company routes a loan through a group entity in another country to claim an interest deduction it would not get otherwise. All filings are accurate and disclosed. The tax authority applies its anti-avoidance rule and denies the deduction, but no criminal charge follows because nothing was hidden.