Tax avoidance – illegal method of tax avoidance or reduction, which manifests itself as intellectual activity, the construction of artificial business models in order to reduce the tax burden or avoid it at all. Tax avoidance can occur in a variety of features which are the basis for applying the general or special anti-avoidance rules. If special anti-avoidance rules may not be applied to a certain situation, substance over form principle (general anti-avoidance rule) may be applied. Substance over form principle is applicable when tax avoidance has such features:
- formally concluded transactions are recorded in the accounts and are performed;
- content of concluded transaction or group of them, taking into account the whole set of actions, does not meet the objective and sense of tax laws, though formal requirements of tax laws are met when taking into account only separate actions;
- main purpose of transaction or group of them is tax benefit. Tax benefit is understood as an extension of the deadlines for paying the tax due, reduction of amount of tax or complete avoidance of tax, increase of tax overpayment or shortening the period for repayment of tax overpayment;
- transaction or group of them can not be justified by any needs of business or other benefits, except the purpose of reducing the tax burden. Under normal market conditions, such transactions would not be concluded.
Comments are closed