If you're a lawyer, accountant, economist, student, researcher… or simply curious, you know that Tax Law is one of the most sophisticated areas of law. The main reason: its nomenclature!
To begin our conversation, in this article, I want to teach you the differences between avoidance, evasion, and elusion! This is because, despite having very similar names, these concepts are quite different things.
Incidentally, once, during my undergraduate studies, I received the following advice from a professor at my university: "If the law gives different names to legal institutions, it's because they are different things!" This advice from my professor, Luciano Andraschko, marked my academic journey, and I hope it helps you too.
When dealing with tax evasion, avoidance, and tax fraud, we must automatically link these concepts to Tax Law, especially Tax Planning.
I recently wrote here on the IDP Blog that tax planning is a preventive act, aimed at finding mechanisms to reduce financial outlays related to tax payments.
When we seek to "reduce" tax payments, we are, at the end of the day, dealing with the "non-incidence of the tax obligation".
But what is a tax obligation?
In general terms, the tax obligation arises from the law.
Therefore, for someone to be obligated to pay a tax, it is necessary that this tax be stipulated in the legislation (a rule known as the principle of legality).
Want an example? Here you go!
The law states that those who own a motor vehicle must pay IPVA (Tax on Motor Vehicles).
You can see, for example, that this is an abstract rule. In law, we usually say that it is a "hypothesis of incidence," that is, the day someone owns a car, they will pay vehicle tax.
One day, little Johnny bought a car. What was the consequence? He would have to pay vehicle tax. The act of "buying a car" is known to us in law as the "taxable event."
In general terms, the triggering event is the realization of a hypothesis of incidence (abstract norm).
The convergence of the taxable event and the occurrence of a triggering event gives rise to the tax obligation!
Let's try this reasoning in reverse?
Now, if an individual does not own a car, there is no taxable event for the IPVA (Vehicle Property Tax), only an abstract hypothesis of incidence.
If he does not own a car and there is no taxable event, then there is no tax obligation to speak of, which will only arise when that situation foreseen by law exists in the real world.
Tax obligation vs. tax planning
In various sectors of the market, taxpayers seek to reduce taxes to generate more competitiveness and increase their profit margins.
As stated in the introduction to this article, the purpose of tax planning is to "prevent the taxable event from occurring."
The non-incidence of a tax obligation, or even its reduction, will inevitably generate greater competitiveness for companies operating in the market.
For this reason, seeking to protect the public interest, article 116, sole paragraph, of the CTN (Brazilian Tax Code) was created.
In simple and objective terms, the article of tax legislation indicates that "the administrative authority may disregard acts or legal transactions carried out with the purpose of concealing the occurrence of the taxable event or the nature of the constituent elements of the tax obligation."
It is possible to perceive a special care taken by the Public Administration with tax issues in order to avoid illegal acts involving these obligations.
For this reason, it is good to keep in mind that tax planning, according to the teachings of Professor Gabriel Sant'Anna Quintanilha, consists of studying and adopting legal alternatives with the aim of reducing, eliminating, or deferring the tax burden before the occurrence of the taxable event.
Tax planning is also known as tax avoidance. It is not only a legal practice, but also essential for the operation of a company.
If tax avoidance is legal, what is tax evasion?
Here's the thing! I usually say that tax avoidance is tax planning that went wrong, for illicit reasons.
This is because tax evasion occurs when there is an abuse in the form of the act, that is, the main objective is the practice of legal transactions with the purpose of concealing the occurrence of the event that generates the tax obligation.
This is why, as mentioned, the sole paragraph of article 116 of the CTN (Brazilian Tax Code) was created, which was recently declared constitutional by the Supreme Federal Court in ADI 2446.
Deception in practice
Let's use a very fun example presented by the professor. Alexandre Mazza in his Manual of Tax Law.
In his manual, he recounts that Caio and Tício formed a partnership with the purpose of concealing the occurrence of the event that triggered the ITBI (Property Transfer Tax), with the aim of artificially escaping taxation.
Should the tax authorities become aware of this deceptive maneuver, as the professor explains... AlexandreThe tax authorities could assess the tax due, applying article 116, sole paragraph, of the CTN (Brazilian Tax Code).
This refers to an adjustment made by the Public Administration in order to legally reclassify the facts, so that the tax due may be levied.
Tax evasion is not the same thing as tax avoidance.
While tax avoidance refers to a simulation intended to conceal the taxable event, tax evasion is a criminal act.
In general terms, tax evasion consists of fraud against the law, the practice of tax offenses, characterized as a crime.
In the case of tax evasion, the taxpayer omits or provides false information to the tax authorities regarding the occurrence of the taxable event, with the aim of avoiding payment.
An excellent example is when a business offers two prices for merchandise. The first price, at a higher value, is accompanied by an invoice, and the second, at a lower value, is not.
This cunning conduct aimed at concealing the occurrence of the taxable event from the Public Administration is known as tax evasion.
To facilitate your study, we can think of each of these behaviors in the following way:
Tax avoidance is (legal) tax planning.
Tax avoidance is a simulation (it is originally illegal, but the tax authorities can reclassify the legal transaction in order to levy the taxes due).
Tax evasion is a crime (illegal).
The importance of tax avoidance, tax evasion, and tax fraud in practice.
Understanding the meaning of each of these concepts and using them technically allows us to achieve excellence.
It is not uncommon for professionals to be unfamiliar with these terms, or to confuse their meaning.
However, for the defense of a client who, for example, is responding to a tax administrative proceeding, it is essential to know the difference between these concepts, as well as the rules applicable to each of them.
The technical use of tax law terminology, combined with extensive research and study in the field, can establish you as an authority on the subject.
How to build authority in tax law?
This question seems simple, but in practice, it's not!
This is because there are countless professionals who have graduated in law and work in the field. However, as a general rule, it is not possible to develop excellent legal arguments based solely on undergraduate knowledge.
If your goal is to work in the field of tax law, especially tax planning, debt recovery, and defending taxpayers against tax authorities, staying up-to-date is essential.
Beyond master's and doctoral programs, which undoubtedly change the way you think about Law, Brazil offers the possibility of lato sensu specializations, which are an excellent opportunity to delve deeper into Tax Law.
As I always say: read a lot about tax law, research and write about this subject. Seek excellent specialization in order to achieve great success in your career and stand out, whether in the job market or in legal career courses.
Furthermore, be sure to follow my articles here on IDP Online and share them with your friends who also aspire to achieve professional success. Warm regards, and see you soon!
Want to learn more about tax avoidance, tax evasion, and tax fraud? Check out the references below!
References
CHAVES, Francisco C. Tax Planning in Practice – Applied Tax Management, 4th edition. GEN Group, 2017. E-book. ISBN 9788597011876.
CREPALDI, Sílvio A. Tax Planning. Saraiva Publishing House, 2021. E-book. ISBN 9786587958361.
SEGUNDO, Hugo de Brito M. Manual of Tax Law. Grupo GEN, 2022. E-book. ISBN 9786559772261.