Tax avoidance is the taxable taxpayers’ solicitation of legally legitimate means and methods to reduce the amount of the tax imposed on them, or in order not to be subject to it by avoiding the taxable incident (by changing the main residence) or by using a tax exemption. The distinction must be made in this area between tax avoidance, which does not violate the law, although some methods may be described as immoral and driven by the intention to exploit the gaps in legal texts, and between “tax evasion” and on the other hand, which is criminalized by law and punishable.
First and foremost, we should figure out the causes behind tax-avoiding. There are several reasons that enable taxpayers in a country, whether individuals or corporations, avoiding taxes in whole or in part, such as Gaps in the legal texts, and the abundance of tax exemptions that are easily exploited in order to avoid being taxed. For example, “in 2016, the average net tax gap of $406 billion for those years results in 83.7 percent of taxes that should have been paid ultimately being paid “. (htt1) As well as, Tax competition between countries, and their constant pursuit of attracting companies and high net worth individuals by lowering tax rates.
Moreover, the high availability of tax havens around the world, and the ease of procedures to register or obtain residence in individuals.
Thus, those factors allow companies and individuals to change their tax habit to places that charge very low rates of tax or even completely exempt from taxes. Tax avoidance has become a scourge afflicting most of the countries of the world, rich and poor alike, because of globalization (trade and financial openness) and the monopoly of international companies and transnational largest share of the global economy. Also, Tax avoidance – like tax evasion – limits the ability of governments to spend on public spending, which weakens the quality of services they provide to citizens, reduces investment opportunities, and impedes growth and economic development.
Avoidance of tax payments, like tax evasion, results in both developed and developing countries suffering losses in tax revenues. “UNCTAD has estimated tax revenue losses to developing countries of $100 billion annually, which represents about one third of corporate income taxes that would be due in the absence of profit-shifting”