Tax avoidance
A tax avoidance arrangement normally involves an arrangement that is artificial, contrived or has little or no commercial substance and is designed to obtain a tax advantage that is not intended by Parliament.
Tax evasion
Tax evasion is a criminal offence which involves the reduction of one’s tax liability or obtainment of tax credits or refunds through illegal means such as the claim for fictitious or non-existent expense and the failure to declare taxable income.
Tax planning
Tax planning is a process of structuring a transaction or series of transactions to minimise one’s liability to tax, and usually fulfills both the legal requirements and intent of the income tax law.
Tax AVOIDANCE seeks to minimize tax legally within the framework of the law and tax planning is done through tax avoidance. While tax planning is acceptable, it should be noted that in accordance to S33 of the Income Tax Act (ITA), the Comptroller may disregard certain transactions & dispositions so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement.
The examples of arrangements (as well as their key features) that CIT would regard as having the purpose or effect of tax avoidance within the meaning of section 33(1) of the ITA may be classified into the following broad groups:
(i) Circular flow or round-tripping of funds;
(ii) Setting-up of more than one entity for the sole purpose of obtaining tax advantage;
(iii) Change in business form for the sole purpose of obtaining tax advantage; and
(iv) Attribution of income that is not aligned with economic reality
However, S33 shall not apply to any arrangement carried out for bona-fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax.
Tax EVASION is the act of reducing tax liability through illegal means such as:
1. Under declaring income
2. Claiming fictitious expenses
3. Preparing false accounts
Tax evasion is an offence and specific penalties under S96 will be imposed.
Circular flow or round-tripping of funds
In a circular flow of funds, there is usually no change in the financial position of the taxpayer as a result of the round-tripping of funds. A key characteristic of the round-tripping of funds is that a payment which accords a tax deduction to one party is flowed directly or indirectly from that party to another related party as a non-taxable receipt.
A tax avoidance arrangement normally involves an arrangement that is artificial, contrived or has little or no commercial substance and is designed to obtain a tax advantage that is not intended by Parliament.
Tax evasion
Tax evasion is a criminal offence which involves the reduction of one’s tax liability or obtainment of tax credits or refunds through illegal means such as the claim for fictitious or non-existent expense and the failure to declare taxable income.
Tax planning
Tax planning is a process of structuring a transaction or series of transactions to minimise one’s liability to tax, and usually fulfills both the legal requirements and intent of the income tax law.
Tax AVOIDANCE seeks to minimize tax legally within the framework of the law and tax planning is done through tax avoidance. While tax planning is acceptable, it should be noted that in accordance to S33 of the Income Tax Act (ITA), the Comptroller may disregard certain transactions & dispositions so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement.
The examples of arrangements (as well as their key features) that CIT would regard as having the purpose or effect of tax avoidance within the meaning of section 33(1) of the ITA may be classified into the following broad groups:
(i) Circular flow or round-tripping of funds;
(ii) Setting-up of more than one entity for the sole purpose of obtaining tax advantage;
(iii) Change in business form for the sole purpose of obtaining tax advantage; and
(iv) Attribution of income that is not aligned with economic reality
However, S33 shall not apply to any arrangement carried out for bona-fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax.
Tax EVASION is the act of reducing tax liability through illegal means such as:
1. Under declaring income
2. Claiming fictitious expenses
3. Preparing false accounts
Tax evasion is an offence and specific penalties under S96 will be imposed.
Circular flow or round-tripping of funds
In a circular flow of funds, there is usually no change in the financial position of the taxpayer as a result of the round-tripping of funds. A key characteristic of the round-tripping of funds is that a payment which accords a tax deduction to one party is flowed directly or indirectly from that party to another related party as a non-taxable receipt.
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