Source: Dr Marilyn Mifsud¸ PKF Malta

As published on Malta Today 22nd July 2013

Fresh reports only a few days old have witnessed G20 efforts which saw finance ministers come together in a joint statement of support towards enhanced information exchange as linked to combating tax avoidance and tax evasion. At the outset it is important to note the severe distinction between the two terms that are increasingly being collected into one basket in various media reports. As local tax guru Professor Robert Attard aptly put it in one of his books¸ tax avoidance occurs prior to the crystallization of tax liability while tax evasion occurs after the liability to pay tax would have already arisen. In this way¸ while the first raises a few eyebrows and is often viewed as unsavoury¸ the second is a more clear-cut brand of illegal that is universally shown no mercy.

While from a moral standpoint both are easily classified as unethical¸ taxation has a fervent following that has held it to be considered a matter of legality as opposed to one of morality. One high profile exponent of this cult is the holder of the title among the world’s richest men ie; Mr Bill Gates¸ who has publically declared that “in a system of laws it is very important that if you follow the laws you do not have some second standard”. So why are tax avoidance and tax evasion so frequently wedded in references to a fight against either one or the other? One of the answers likely lies in the concept of base-erosion¸ which while for the non expert may idly conjure up images of a depleting earth’s crust¸ in reality translates into the practice whereby moneys that largely arise in one jurisdiction are whisked away into some other more opportune jurisdiction¸ thereby pilfering away from the source country’s revenue that would have (rightfully some argue) been expanded through the otherwise displaced income. Owing to the proliferation of such practices and considering the depressing effects of austerity measures which were introduced when countries face reduced revenues¸ the perception of tax avoidance as a more heinous act seems to have spread like wild fire¸ and consequently landing it at near-equal par with its tax evasion counter-part.

Over the past years¸ Europe’s masterminds constantly tilled the Union’s acreage that in the bull market was always fertile for growth and transformation¸ eventually reaping the four freedoms of movement: of persons¸ of capital¸ of services and of goods. In the glow of securing such  freedoms that became the Internal Market’s throbbing pulse¸ the shackles of the chains to the saying ‘there is slavery in freedom’ started to clank as the realisation slowly dawned that the expansion of the four freedoms had in fact created a giant loop-hole for tax avoidance which during a recessionary period is comparatively more inadvertently enhanced and abused by evaders who are attracted to the charms of tax havens. So one may ask what was new at the latest the G20 Finance Ministers? The answer is that they have pledged their support (this coincides with the recent OECD Convention) for mutual assistance in tax matters¸ which in turn has re-vamped the 2011 earlier version of the same. Turning on its own axis the new Convention fleshes out a form of preventive armour against the perils of tax avoidance¸