The HMRC Corporate Communications states that ``Business taxpayers are more than twice as likely to under-declare their tax liability on-business tax payers`` (HMRC Corporate Communications, 2012). In addition, there are many countries that do not have the ability to audit corporations. With this knowledge, Multinational corporations have the ability to choose to operate in these low security countries and perform tax fraud easily.
Definitions.
Tax Avoidance.
Tax planning is an important activity for corporations. Tax planning is legal and is the use of the law to reduce the amount of taxes that are paid. Tax avoidance occurs when a person or organization uses multiple business activities to reduce or avoid paying taxes. Although the law is being followed, the intent of the law is violated (CRA, 2005). This is referred to as aggressive tax planning. Tax avoidance in all cases is unethical business practices and in some cases illegal. Tax avoidance can be in the form of claiming deductions or credits. For example, if a corporation claims deductions and credits, they are practicing ethical business and are obeying the law. It becomes unethical when a corporation uses multiple business activities (which are legal) as a tax benefit (CRA, 2005). A tax benefit is defined as "a reduction, avoidance or deferral of tax or other amount payable or an increase in a refund of tax or other amount under the Act" (CRA, 1988).
Tax Evasion.
Tax evasion occurs when a person or organization commits a crime and violates the law in order to reduce or avoid paying taxes (CRA, 2005). This is in the form hiding income and information such as omitting taxable receipts, claiming expenses that should not be claimed, etcetera. Those who commit tax evasions can be fined and/or face jail time. Corporations attempt to hide these business activities and in many cases are successful.
Tax Havens.
Tax havens are countries, which have little or no taxes.