A vague understanding of the concept of tax avoidance

The vague understanding of the concept of tax avoidance focuses on the following aspects;

(1) equate tax avoidance with tax planning. This view holds that tax avoidance and tax planning have similar characteristics, that is, legitimacy, tax avoidance and tax planning are actually two aspects of the same problem. Just like a coin has two sides, tax avoidance refers to tax planning, but tax planning is defined from the taxpayer's point of view, focusing on reducing tax burden, while tax avoidance is defined from the government's point of view, focusing on evading tax obligations.

(2) equate tax avoidance with tax saving. According to this view, tax avoidance means that taxpayers handle business or financial matters with the lowest tax burden when there are various tax payment options within the scope stipulated by the tax law, which is also called tax saving.

(3) Divide tax avoidance into legal tax avoidance and illegal tax avoidance. This view holds that tax avoidance is actually divided into legal tax avoidance and illegal tax avoidance, or proper tax avoidance and improper tax avoidance, based on whether a country recognizes taxpayers' right to choose to reduce their tax obligations. However, this view also holds that there is no obvious boundary between legal tax avoidance and illegal tax avoidance, so taxpayers often cannot distinguish between them.

In my opinion, it is precisely because of the above vague understanding of the concept of tax avoidance that the ideological understanding of anti-tax avoidance work is not unified in practice, which leads to great resistance and low efficiency in anti-tax avoidance work. Understanding the concept of tax avoidance is inseparable from the attitude and views of tax authorities on tax avoidance in practice. Undoubtedly, the tax authorities set up a special anti-tax avoidance department and deployed professionals to carry out anti-tax avoidance work. Anti-tax avoidance refers to improper tax avoidance, and proper tax avoidance cannot be the object of tax authorities' anti-tax avoidance work. Therefore, tax avoidance referred to by tax authorities is unfair tax avoidance.

In the theoretical circle, tax avoidance behavior is mostly discussed from the perspective of derogatory meaning. For example, in the Glossary of International Taxation published by the International Financial Documentation Bureau 1988, it is explained in this way: "The term tax avoidance refers to reducing its tax liability through legal means, which usually contains derogatory meanings. For example, the word is often used to describe individuals or enterprises, through careful arrangements, taking advantage of loopholes, characteristics or other defects of the tax law, and taking advantage of loopholes to achieve the purpose of tax avoidance. " Some countries equate tax avoidance with tax evasion. For example, Article 23 1 of Australia's Income Tax Law stipulates: "It is illegal to evade tax payment by means of malicious acts, failure to perform or neglect tax obligations, fraud or deception." To sum up, the definition of tax avoidance should abandon the theory of legal tax avoidance or legal tax avoidance. Tax avoidance refers to improper tax avoidance, and those behaviors that conform to the provisions of the tax law and aim at reducing tax burden are summarized as tax saving or tax planning.

The distinction between tax avoidance and tax saving or tax planning should be clearly defined in legislation. In my opinion, tax avoidance and tax saving or tax planning are all behavioral arrangements that can reduce the tax burden, but tax avoidance makes the tax benefits that the country should have gained fail through abnormal and unreasonable behavioral arrangements; However, tax saving or tax planning is usually a reasonable behavior arrangement to obtain the tax benefits that the state has explicitly or implicitly allocated.

Whether the taxpayer's behavior arrangement is reasonable and normal needs to be based on the general observation of ordinary people in a society under the same circumstances. When a behavior arrangement is considered reasonable or normal by the observation of ordinary people in society, and the result of this behavior arrangement is to obtain tax benefits that the state has explicitly or implicitly allocated, then this arrangement is tax planning or tax saving; On the other hand, if it is considered abnormal according to the general observation of the general public, and the result of the behavior arrangement leads to the failure of the tax benefits that the country should have obtained, it belongs to tax avoidance. The author suggests that tax avoidance should be distinguished from tax saving or tax planning based on whether the behavior is reasonable, whether the behavior leads to national tax failure or whether the country has obtained tax benefits explicitly or implicitly, and at the same time, tax avoidance should be distinguished from tax saving or tax planning by non-exclusive enumeration, such as transfer pricing is tax avoidance.

Second, the misunderstanding of the nature of tax avoidance.

There are basically the following views on the nature of tax avoidance:

(1) legality. This view holds that tax avoidance should be regarded as a legal act without clear definition by law from the principle of tax legalism.

(2) Defamation theory. This view holds that tax avoidance is neither illegal nor legal, but an illegal act. The so-called illegal behavior refers to the situation that although the behavior violates the statutory purpose, it cannot be legally applied. Or some scholars say that "even if tax avoidance is not recognized as legal and is an economic act protected by law, it is definitely an economic act that is not illegal and cannot be sanctioned by law."

(3) the theory of illegality. This view holds that although tax avoidance is legal in form, it is illegal in essence, which violates the purpose of the tax law, does not conform to the fair principle of taxation according to ability, and undermines the substantive justice of the tax law. It should be characterized as illegal and punished by law. Among the above three viewpoints, detachment theory is dominant. They believe that if it is defined as legal, it cannot explain the substantive illegality caused by the purpose of tax law; If it is defined as illegal, it will be confused with tax evasion, which is bound to go against the tax legalism pursued by the tax law. The author believes that this illegal view will make the public tend to regard tax avoidance as a gray area, thus contributing to tax avoidance, which is wrong in theory and harmful in practice.

Regarding the connection and influence of private law behavior on the effect of tax law, Professor Peking University Liu Jianwen once pointed out that the tax object of tax law is nothing more than parallel behavior, turnover, income or property, and whatever it is, it belongs to the object of private law adjustment. If there is no commodity trading behavior in private law, as well as commercial interests and property ownership based on these behaviors, tax law will become passive water and rootless wood.

To sum up, I think we should discuss the legal nature of tax avoidance from the field of private law. In private law, private law acts can be divided into valid acts, invalid acts, changeable and revocable acts and acts with undetermined effect according to whether they can lead to the expected legal consequences or the legal consequences pursued by the parties. Invalid civil behavior refers to the civil behavior that the legal consequences pursued by the parties cannot be realized; Alterable revocable civil act refers to an act that, after its establishment, causes the legal consequences required by the content, but does not fully meet the effective conditions, allowing the parties to change or cancel it; A civil act with undetermined validity refers to an uncertain state that it cannot take effect due to the lack of effective conditions after its establishment, but the law allows a third party to supplement the effective conditions to make it effective or allows it to be invalid without supplementation. Both the Civil Code of our country and the Civil Code stipulate the situations of invalid behavior, changeable and revocable behavior and behavior with undetermined effect.

In any of the following circumstances, its behavior is invalid:

(1) One party signs the contract by fraud or coercion, which harms the national interests;

(2) Malicious collusion that harms the interests of the state, the collective and the third party;

(3) Covering up illegal purposes in a legal form;

(4) Damaging the public interest;

(5) Violating the mandatory provisions of laws and administrative regulations.

A revocable civil act may be changed under the following circumstances:

(1) a civil act of gross misunderstanding;

(2) It is obvious that obviously unfair's civil behavior;

(3) A contract concluded by one party by means of fraud or coercion or taking advantage of a person's danger.

In any of the following circumstances, it is a civil act with undetermined effect:

(1) has no right to punish the behavior;

(2) unauthorized agency behavior;

(3) a civil act that a person with limited capacity cannot carry out alone.

Putting tax avoidance on the scale of private law, tax avoidance first violates the provisions of the Civil Code and "civil acts shall not harm social public interests". We know that tax revenue is the main source of national fiscal revenue, and the fiscal revenue obtained by the state is mainly used to provide social public goods, which reflects the interests of the public, while tax avoidance makes the tax benefits that the state should have realized fail, that is, it harms the interests of the public. Therefore, tax avoidance violates the relevant provisions of the Civil Code and the Civil Code and harms the public.

Secondly, tax avoidance is to invalidate the national tax through abnormal behavior arrangements. These abnormal behavior arrangements often lack real and reasonable business purposes, do not engage in real business transactions, but only to obtain the benefits of reducing tax burden. The author believes that these acts are civil acts that cover up illegal purposes in a legal form in civil law. Also known as a civil act to circumvent the law. That is, the actor's hypocritical civil behavior in legal form is carried out for illegal purposes.

Hypocritical civil acts that cover up illegal purposes in a legal form mainly include two situations:

(1) A false civil act refers to the fact that the actor has carried out a civil act on the surface, but in fact there is no civil act. For example, in order to avoid the court's enforcement of his property, A gave his property to B falsely, but in fact there was no gift.

(2) Camouflaged civil behavior refers to using a seemingly legitimate civil behavior to cover up another real civil behavior.

Common tax avoidance methods in international tax avoidance include transfer pricing, capital weakening, tax avoidance by tax havens, abuse of tax agreements, etc.

(1) Transfer pricing is also called internal pricing method, that is, the pricing of internal transactions between affiliated enterprises is a false transaction with untrue price.

(2) Abuse of tax treaties refers to the practice of residents who are not parties to tax treaties to set up intermediary companies in countries that are parties to tax treaties in order to obtain tax benefits that are not given to them by tax treaties. This kind of behavior is to make the favorable tax law applicable by artificially creating related factors, which belongs to legal evasion.

(3) Using tax havens to avoid taxes means setting up a base company or holding company in tax havens, transferring the income to the base company for deferred tax payment, or reinvesting the income.

(4) Using capital to weaken tax avoidance means that multinational companies mainly provide loans to foreign subsidiaries instead of equity investment, and the interest paid by subsidiaries can be deducted as expenses before tax, so as to achieve the purpose of tax avoidance. The measures to prevent capital weakening and tax avoidance are mainly to stipulate the standards for the proportion of liabilities and equity of subsidiaries. If the debt-equity ratio of a subsidiary is too high or the interest paid exceeds a certain level of net income, the excess interest cannot be used as a tax deduction factor, but should be regarded as a dividend. The essence of this practice is to deny the effectiveness of interest expenditure exceeding the standard in tax law, and it is also a false act from the perspective of civil law.

Through the above analysis, I think tax avoidance is an illegal act that violates the civil law and an invalid act that cannot lead to the expected consequences. Foreign anti-tax avoidance legislation and practice can fully support this argument.

In Sweden, transactions are not acceptable at the time of taxation if the following conditions are met:

(1) The taxpayer's behavior is not the most closely related to obtaining business income (except tax incentives);

(2) Tax interest is the essential reason of behavior;

(3) Taxation based on taxpayer's behavior conflicts with legal rationality. In common law countries, the basic principle of identifying and dealing with tax avoidance is "substance is superior to form", which is usually expressed as "false transaction principle", that is, artificial and false organizational structure and transaction form used for tax avoidance will not be considered to have tax significance.

In civil law countries, this principle is generally called "the principle of formal abuse", which requires that all transactions and organizational structures must have an acceptable purpose, not just tax avoidance, otherwise it will be considered as an abuse of legal forms. To sum up, there are usually several specific standards on how to distinguish substance from form in the world: First, to test whether the economic substance relationship meets the legal form conditions. For example, even if a person does not legally belong to the owner of an income, but in fact has the right to enjoy the income or have the right to control the disposal of the income based on his own interests, he can be regarded as the effective owner of the income, thus being included in his taxable income. Second, judge whether there are false factors.

"Falsehood" refers to the method used to blind the facts, or the use of artificial or abnormal legal forms, such as fictitious transit business through tax haven base companies. Third, judge whether there is a combat purpose. If there is no reasonable business purpose, this transaction will be rejected by the tax law. If the transaction is not for profit, it is necessary to consider whether there is a purpose of tax avoidance.

Defining tax avoidance as invalid and illegal, some people think that this will confuse tax avoidance with tax evasion, which is bound to violate the tax legalism pursued by the tax law. Tax legalism requires that citizens should only bear legal tax obligations according to the clear requirements of the tax law. Without clear provisions of the law, citizens should not bear the obligation to pay taxes, and the interpretation of the tax law should be strictly restricted. In principle, only literal interpretation can be adopted, and no arbitrary expansion or analogy can be made. When there are legal loopholes in the tax law or defects and deficiencies in tax legislation, it should be solved by the legislature through legal procedures, and the state should bear the losses caused by it before the law is amended.

The author fully agrees with the above connotation of tax legalism, but opposes the view that tax avoidance is illegal and violates the principle of tax legalism. When there are loopholes, ambiguities or deficiencies in the tax law, which leads to the uncertainty of whether to tax, it should not be taxed, which is the embodiment of tax legalism. However, in the case of tax avoidance, it is undoubtedly difficult to determine whether tax should be levied because of loopholes, ambiguities, deficiencies or defects in the tax law. There is no doubt that taxpayers should pay taxes, but taxpayers try to avoid a clear and certain tax burden through abnormal behavior arrangements. As for the fear that tax avoidance and tax evasion will be confused, the author thinks this kind of worry is superfluous. In fact, some countries, such as the United States and Australia, equate tax avoidance with tax evasion and adopt the same principles and methods to deal with tax avoidance and tax evasion.

This practice is beneficial and harmless from the perspective of national taxation. However, considering that China has treated tax evasion differently in theory and practice for a long time, it is still necessary to distinguish tax evasion. When tax avoidance is regarded as illegal, it differs from tax evasion in the following two aspects: (1) different behaviors. Tax evasion is mainly carried out by forging or altering account books and accounting vouchers, while tax avoidance is carried out through abnormal behavior arrangements, and the behavior itself is not illegal. (2) The legal consequences are different. The legal consequence of tax avoidance is to deny the effectiveness of tax avoidance in tax law. In addition, it generally does not lead to administrative sanctions or criminal sanctions. The legal consequences of tax evasion will not only be denied in tax law, but also lead to administrative sanctions and even criminal sanctions.