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The problem of tax evasion is as old as the taxes themselves. Its explanation and the determination of the mechanisms to reduce it are of vital importance for any country. So much so that in the economic literature there is already a sub-frame called the economics of tax compliance or non-compliance, although it has also been approached from a legal, organizational and ethical perspective.
The grammatical meaning according to the Spanish Language Dictionary defines the action of eluding as “cunningly avoiding a difficulty or an obligation”, this definition is not far from what is accepted in the legal tax language as circumvention, a behavior that is carried out in order to totally or partially avoid the tax burden of economic activities, carried out by taxpayers. (Royal Spanish Academy 2016)
The most important element of the circumvention would be the adoption of negotiable instruments or not, but, in any case, exercised within the prerogatives of the autonomy of the will and freedom of lawful contracting and whose effects are worthy of legal protection, in how many
Evasion is understood as the fact of being a taxpayer in any way determined by law, and not complying with the obligations in this regard. Evasion occurs when the subject, being a taxpayer of a certain tax, and having carried out operations that involve the causation and payment of said tax, refrains from complying. This is in violation of the law, since the obligation exists, it has been given, and the subject does not comply with it.
Internal and International Tax Avoidance
The internal tax avoidance consists of the actions of taxpayers who seek to avoid the application of the tax rule, trying to benefit from the application of another rule of the same system. On the other hand, in the international circumvention taxpayers seek to escape the determined legal system, trying to provoke the application of a rule corresponding to another legal system, by altering the circumstances of fact and law that determine which will be the competent legal order for govern a certain issue. The objective pursued with this change will be to obtain a treatment or improper tax advantages, given the true nature of these businesses, the reality of the operations carried out or the abusive nature of those.
Using the most characteristic features, we can define tax havens such as those jurisdictions, of a state or sub-state nature, with low or non-existent tax levels, in which economic operators enjoy the anonymity provided by banking, commercial and professional secrecy, the latter guaranteed by norms of legal or constitutional rank.
The historical evolution of tax havens originates in the second half of the 20th century. Its boom responds to the industrial and economic development of the postwar years as well as the process of decolonization of some European powers. In this way, motivated by many different circumstances, some territories designed fiscal systems capable of attracting foreign capital, using the most varied legal-fiscal structures. The reasons and motivations of this process are very varied. Some territories based their tax systems based on the principle of territoriality, such as Costa Rica, Hong Kong or Panama. Other territories, such as the Isle of Man, Holland, Luxembourg or Switzerland have had no greater reasons than fiscal competition.
The current theory of tax evasion It appears at the beginning of the 70’s of the last century, as a specific application of the economic theory of crime developed by Gary Becker in the late 60’s. The work that is considered the origin of subsequent developments on evasion presents a model in which evasion is the result of the decision taken by the utility maximizing individual, a decision that will depend on the estimation of the expected costs and benefits of evading. The relevant thing is that Paying taxes It is analyzed as a decision-making process under uncertainty, which implies an exercise in assessing the risks involved. The uncertainty is related to the costs of evading, since at the time of filing the taxes, the individual does not know if he will be audited or not. Thus, the costs are the tax evaded (which must be paid in the case of being detected) plus the penalties, multiplied by the audit probability, and the benefit is the amount of the tax evaded.
Literature reviews show that this has been a very energetic field of research in which the basic model was expanded and perfected in several directions. Thus, the specialized literature today on the economics of tax evasion is very voluminous. Both the original model and the vast majority of extensions were focused on direct income taxes. On the other hand, empirical studies related to the same theme were carried out, also in the vast majority, in developed countries.
Both avoidance and evasion are economic phenomena that have negative consequences for the tax administration, whose special manifestation can be seen in the collection area. To fight against behavior that involves a violation of the spirit of the norm, both tax and legal authorities need to reform the existing collection tools, which must be provided by the legislator.
All these elusive forms that taxpayers make generally cause a distortion of what is considered to be the central principle of taxation, such as economic capacity in its horizontal or equal aspect, because when these phenomena are confiscated in the internal systems of each state, a structural weakening of said principle is generated.
With respect to the punish-ability of the behaviors established in the tax laws, these could be violated if it could not be clearly predicted that a certain conduct could be sanctioned. So only sanctions may be applied to behaviors that are provided by law and meet all the elements of the type, included in it. In this sense, both fiscal policy and the legal framework must be redirected to establish the necessary formal regulations to reduce tax evasion and avoidance, or failing that, carry out the corresponding sanctions under the highest order of justice.