Tax evasion

German GDP in tax havens

20220826 Share of unpaid taxes, by income level - area chart, treemap - NYTimes - Dept of Treasury

Countries with Largest Tax Evasion Amount v3

Size of European Shadow Economy

Tax-delinquent apartment rental building in Santa Fe, Dasmariñas, Cavite

(Venice) Bocca di Leone in the Doge's Palace

Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.

Overview

Tax evasion is a crime in most jurisdictions around the world and is typically punishable by both fines and imprisonment. In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both practices affect the government's ability to collect revenues. The difference between the two is often not clear, but it hinges on the legal interpretation of the tax laws.

Methods of Tax Evasion

There are numerous methods by which individuals and entities can evade taxes. Some of the most common methods include:

• Underreporting income: Not reporting income, or reporting less income than was actually earned.
• Inflating deductions: Claiming deductions for expenses that were not incurred or are not legally deductible.
• Hiding money or assets: Keeping money in unreported offshore accounts or in the form of assets that are not easily traceable by tax authorities.
• Using fake documents: Creating false invoices or receipts to justify false deductions or credits.

Consequences of Tax Evasion

The consequences of tax evasion can be severe, including:

• Financial penalties: These can exceed the original taxes owed.
• Imprisonment: In serious cases, individuals may face jail time.
• Reputation damage: For businesses, being caught evading taxes can lead to significant damage to reputation and trustworthiness.

Combating Tax Evasion

Governments and international organizations employ various measures to combat tax evasion, including:

• Audits: Regular and random audits are conducted to check the accuracy of tax returns.
• Information sharing: Countries may share financial information to track the flow of funds and catch individuals hiding income offshore.
• Whistleblower programs: Some jurisdictions offer rewards to individuals who provide information that leads to the recovery of unpaid taxes.
• Laws and regulations: Continuous updating of tax laws and regulations to close loopholes and make evasion harder.

See also

• Tax law
• Tax avoidance
• Internal Revenue Service
• Offshore banking