How is tax avoidance different from tax evasion?

“Tax avoidance” is generally assumed to refer to “legal” means of underpaying tax (such as loopholes), while “tax evasion” refers to illegal means. In the real world, however, this legal-illegal distinction often falls apart.

A lot of what gets called “tax avoidance” cannot be called “legal” because it is in a grey area. Whether an activity is legal or not often does not become clear until it has been challenged in court. Ultimately, both tax avoidance and tax evasion result in countries being short-changed out of billions in tax with public services, local industries and ordinary people suffering for it.

For this reason, the term “tax abuse” is sometimes used instead of “tax avoidance” and “tax evasion” in order to focus on the cost of the activity on society instead of its legality.

Learn more about tax avoidance and tax evasion here.