Tax Avoidance Vs Tax Evasion: Is It Only An Ethical Issue?

In order to understand whether this is an ethical issue, it is first necessary to clarify two terms tax evasion and tax avoidance. It would be reasonable to evaluate the differences between tax evasion and tax avoidance. Tax evasion is illegal, it consists of the willful violation or circumvention of relevant tax laws to minimize tax liability. From a legal point of view, such behavior is easily recognizable: the taxpayer has broken the law and it amounts to criminal fraud. By contrast, t a x a v o i d a n c e is not illegal. It is simply taking advantage of the legal opportunities and loopholes in the system to minimize one’s tax liability. It requires fictitious transactions and structures that reduce taxes in a way that is contrary to the policy or spirit of the legislation. Tax ethics refers to tax payer’s moral obligation to pay taxes. But sometimes it is not only an ethical issue. International tax practice mainly uses these two key terms. It should be noted that in countries where the official language is not English, there might be problems in translating these terms. The content and meaning given to them in different jurisdictions may not overlap, cannot be distinguished or may be confused. The paper deals with tax avoidance and tax evasion on the context of tax terminology, tax legislation and research performed in Estonia.