ACCA Applied Knowledge · Business and Technology · Regulation and financial crime
Which of the following is a key difference between tax avoidance and tax evasion?
The key difference is legality. Tax avoidance lowers a tax bill through arrangements that are within the law, while tax evasion lowers it by illegal means such as concealing income or falsifying information. Both individuals and companies can be involved in either, so the entity type is irrelevant.
- AAvoidance reduces tax by lawful arrangements, whereas evasion involves illegal non-disclosure or misstatementCorrect
- BAvoidance is always illegal, whereas evasion is always legal
- CAvoidance applies only to individuals, whereas evasion applies only to companies
Explanation
The distinction is legality: avoidance uses the law to minimise tax, while evasion breaks the law through dishonesty. Option B reverses this. Option C is wrong because both can be carried out by individuals and companies.
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