- New Horizons in Law and Economics series
Edited by Hans Sjögren and Göran Skogh
Chapter 7: Tax compliance by businesses
Paul Webley* INTRODUCTION The Meaning of ‘Tax Compliance’ Tax compliance is a deceptively straightforward term. There are tax rules (for example VAT laws, regulations on corporation tax filing) and businesses that follow the rules are showing tax compliance. Those that don’t are noncompliant. But there are some legal and conceptual distinctions that must be borne in mind at the outset. Social scientists tend to use the terms ‘tax evasion’, ‘tax fraud’ and ‘tax (non-)compliance’ interchangeably. A search through the literature shows that they favour the first (probably because the deliberate breaking of rules is more theoretically tractable) but this is inappropriate. Tax authorities and tax agencies very clearly prefer the term ‘compliance’. So it is appropriate to begin with some definitions. In the UK (and in most jurisdictions) there is a legal distinction between tax evasion and tax avoidance. Tax evasion is illegal. It involves deliberately breaking the law in order to reduce the amount of tax paid. It can involve acts of omission (for example failing to report certain assets to the tax authorities) or commission (for example, falsely reporting personal expenses as business expenses). Tax avoidance is not illegal. It involves ‘every attempt by legal means to reduce tax liability which would otherwise be incurred by taking advantage of some provision or lack of provision in the law ... it presupposes the existence of alternatives, one of which would result in less tax than the other (Royal Commission on Taxation, 1966, p. 538). Tax compliance is a more...
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