Question

1. Please distinguish between ‘tax evasion’ and ‘tax avoidance’. Does managing cash flows, the type of business entity used, and personnel policy constitute tax evasion? Why do you say so?
2. How does the detail of business income taxation enter into the NPV analysis of international real investment?
3. What are the three degrees of presence in a foreign country? Please give the advantages and disadvantages of each.
4. With respect to business income, is the U.S. a worldwide taxing jurisdiction? Why do you say so? How do the BEAT provisions of the TJCA tend to preserve the taxability at U.S. rates of corporation income at U.S. rates?
5. What is a tax treaty?

Answer 1

Ques 1)

Tax evasion refers to unlawfully avoiding to pay due taxes using illegit means like understatement of income, inflating deductions, not reporting cash transactions etc. This is forbidden in the eyes of law.

Tax avoidance refers to implementing effective tax planning to minimize taxes payable in a year by using legit means like taking help of deductions, rebates, making tax saving investments etc.

Managing cash flows, like ensuring efficient cash receipts and payments on time is not tax evasion. It falls under good tax planning which helps in tax avoidance. Same goes  for the type of business entity and personnel policy. The former is an inherent base of a business which attracts different levels of taxes, the latter is done to ensure effective human resource management, teamwork and timely achievement of company goals. Hence, none of these lead to tax evasion.