- January 28, 2010
- Posted by: Atty. James Biron
- Category: Tax
Tax avoidance and tax evasion are the two ways by which tax payers try to reduce the amount they have to pay to the Bureau of Internal Revenue. While both these terms have the same objective, tax avoidance and tax evasion differ in the means by which the purpose of paying lesser amount of tax is obtained.
What is tax avoidance?
This is the means by which tax payers try to reduce tax within the means allowed by law. Tax avoidance should me made in good faith and at arms length, otherwise it will not be regarded as such.
What is an example of tax avoidance?
A good example of tax avoidance is the use of the depreciation method in claiming deductible expenses to lessen the income tax.
What are the elements of tax evasion?
Tax evasion connotes the integration of three factors: (1) end to be achieved, i.e. the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that the tax is due; (2) an accompanying state of mind which is known as “evil,” in “bad faith,” “willful,” or “deliberate and not accidental”; and (3) a course of action or a failure of action which is unlawful.
What is tax evasion?
Tax evasion is the opposite of tax avoidance. Under this scheme, the taxpayer employs means outside the lawful means and will merit the tax payer civil and even criminal sanctions for his fraudulent acts.
What is an example of tax evasion?
A simple example of this method is the understatement by the tax payer of his revenues in order to minimize or reduce the taxes which will be imposed thereon. As an illustration, Mr. Salazar reported only Php1 million as his income when in truth he was able to earn Php10 million.
The case of Commissioner of Internal Revenue vs. The Estate of Benigno P. Toda et al, decided by the Supreme Court on 14 September 2004, is illustrative of the concepts of tax evasion and tax avoidance. In the said case Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, ?President and owner of 99.9% of its issued and outstanding capital stock to sell the Cibeles Building, located in Ayala Avenue, to a certain Rafael Altonaga for Php100 million. The latter sold the building to RMI for Php200 million. This transaction was evidenced by Deeds of Absolute Sale notarized by the same notary public on the same day.
The Court noted that Mr. Altonaga was a mere dummy and that the transaction was actually between CIC and RMI. CIC sought to avoid the payment of corporate income tax on the additional Php100 million by changing the income from income structure from corporate income tax to individual capital gain. Thus, the whole transaction was considered as tax evasion and not a mere tax avoidance.
Good day sir! Could you kindly gibe examples about tax avoidance? What kinds of expenses are allowed?
There’s what is called 40(c)(2) transaction, it is a rather complicated matter to discuss, that is one way of lowering your tax in a legal manner.
There are several deductions which are allowed by law please take a look at this link:
http://www.bir.gov.ph/taxcode/24615.htm
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Good morning Sir! May i know the consequences on taxpayers who committed Tax Evasion?
Hi Vicky, I sent you an email, kindly check
hello sir, may I have the permission to ask: why is it that DUTY FREE Shops are tax exempt? thank you 🙂
hello estudiar, it’s because there was a law which granted them this privilege.
thank u sir 🙂
You’re welcome! 🙂
hello sir, i just want to ask, why is it that goods in duty free shop are tax free?thank you 🙂
hello estudiar, it’s because there was a law which granted them this privilege.
Hello Sir. I just want to knw.. What are the effects of tax evasion on the business? and what are the ways on how to legally avoid taxes and prevent tax evasion? and can you please cite cases of tax avoidance and tax evasion.. thank you!!
Drey, please visit my office so we can discuss this important matter