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What is Tax Evasion?
Tax evasion can be conducted through many methods. It is sometimes confused with tax avoidance, which is not illegal. In this article we will identify what is tax evasion and where it is conducted globally.
What is the penalty for tax evasion?
The penalty for tax evasion can be severe. It can range from significant fines to sentences for jail time. See some of the more serious convictions in the table below.
|Country||Max Fine||Max Sentence||Case Example|
|United States||$250,000||10 Years||Jack Abramoff|
|United Kingdom||Unlimited||7 Years||Abul Kalam Muhammad|
|Australia||10 Years||Fanny Beerepoot|
|Greece||20 Years||See the Lagarde List|
|Germany||10% of evasion||10 Years||Uli Hoeness|
|France||3 Million Euros||7 Years||Patrick Balcony|
|Spain||5 Years||Ricardo Cavalho|
|Italy||6 Years||Silvio Berlusconi|
|Russia||10 Years||Platon Lebedev|
In Greece we couldn’t find a conviction for tax evasion which demonstrates why the nation suffered significantly in the 2008 financial crash. They just don’t pay tax in Greece! The Lagrade list controversially identified several Greeks ‘hiding’ money in Swiss bank accounts but despite this being in the hands of authorities since 2009, still no one has been convicted.
The fines possible range from a set maximum to percentages of the total evaded going up as the amount increases. Then of course there are back taxes to pay.
In the United States the IRS pay significant rewards to whistle-blowers for reporting tax evasion. The whistle-blower doesn’t need to be a US citizen to get rewarded, just support the case in a substantial way leading to tax recovery. The biggest whistle-blowing reward in the US is $56 million to a single whistle-blower.
In September 2017, HMRC received a boost to its criminal powers following the introduction of the failure to prevent the facilitation of tax evasion offences under the Criminal Finances Act 2017.
How much is evaded in tax each year?
HMRC estimated that in the 2016-2017 tax year the total cost of tax evasion in the UK was as much as £5.3 billion.
In the US the IRS claim between 2008 and 2010 $458 billion was evaded in taxes.
What is the difference between tax evasion and tax avoidance?
While tax evasion involves an individual or business deliberately subverting the tax system and is criminal, tax avoidance involves using the tax laws to your benefit. Arranging your finances in a way that reduces the amount of tax paid but in a way that is arguably lawful is common among the wealthy and seen as good practice.
Tax evasion usually carries with it a heavy maximum penalty and/or an unlimited fine, it is rarely taken lightly.
There are also tax avoidance schemes that exist that encourage people to make complex transactions that will ultimately save them money on tax. These are ‘too good to be true’ and will end up costing the tax-dodger more in the long run. It will also end them up in jail if enough is evaded.
Here are some methods of evading tax.
- Hide wealth offshore in privacy locations.
- Hide personal assets in a company (planes, property and yachts)
- Incorporate businesses in offshore tax havens
- Put your money in trusts
- Utilise nominee directors of companies
- Avoid beneficial ownership rules
- Accept payments in cash
- Invest in cash intensive business and clean it through the dark web
- Structure your finances offshore
- Utilise a law firm who will claim client confidentiality/privilege.
- Under report income
- Under or Over invoice
- Get paid offshore and take a loan as a salary
- Set up cross border complex transactions
- Clean your money through a bitcoin tumbler
- Claiming personal expense as business
- Keeping two sets of books
- Engaging in sham transactios
What is Cheating the Public Revenue?
Due to the serious nature of the crime, the maximum sentence for cheating public revenue in the UK is life in prison or an unlimited fine. It relates to any activity that HMRC can prove you did knowingly and willfully to cheat the exchequer.
This offence is a common law offence and is reserved for the significant criminal/criminality. It is a conduct offence, meaning a loss by HMRC isn’t absolutely necessary to convict.