Distinction between tax avoidance, tax evasion and general non-compliance
Tax avoidance, in our view, is exploiting the tax rules to gain a tax advantage that the Scottish Parliament never intended. It may involve contrived, artificial transactions that serve little or no commercial purpose other than to produce a tax advantage. It involves operating within the letter, but not the spirit of the law.
The RSTPA 2014 provides power for us to take counteraction under the Scottish GAAR against tax avoidance arrangements which we consider to be artificial. Arrangements that are not artificial as defined by the RSTPA 2014 will not be liable to counteraction under the Scottish GAAR.
Tax evasion (also known as tax fraud) is the illegal evasion of taxes (for example by deliberately misrepresenting or withholding information). Fraud (including fraud by agents) is a common law offence in Scots law for which the sanction can be an unlimited fine and/or an unlimited term of imprisonment.
Non-compliance which is neither evasion nor avoidance (for example where a taxpayer innocently neglects to make a return or pay tax on time) may lead to the imposition of a civil financial penalty (see RSTP3001 for guidance on penalties).
Why tackling tax avoidance is important
Tackling tax avoidance is important because:
- tax avoidance reduces public revenues;
- there is a risk to the tax base if other taxpayers behave in a similar way;
- there will be unfairness to compliant taxpayers who continue to meet their liabilities as intended by the law; and
- tax avoidance can undermine public confidence in the tax system and lead to reduced rates of compliance.