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ACCA Applied Knowledge · Business and Technology · Regulation and financial crime

Which statement best describes the difference between tax avoidance and tax evasion?

Tax avoidance legally minimises tax by using the rules, while tax evasion illegally reduces tax by deliberately concealing income or falsifying information. Evasion is a criminal offence; avoidance is lawful, although it may be challenged where it defeats the intention of the legislation.

  1. AAvoidance is the illegal non-disclosure of income, whereas evasion is the lawful use of reliefs
  2. BAvoidance uses legal means to reduce a tax liability, whereas evasion is the illegal reduction of tax through deliberate deceptionCorrect
  3. CBoth are lawful, but evasion applies only to individuals and avoidance only to companies
  4. DBoth are criminal offences, but evasion carries a lower penalty

Explanation

Tax avoidance arranges affairs within the law to reduce tax. Tax evasion involves deliberately concealing or misrepresenting information to pay less tax than is due, which is a crime. The first option reverses the two terms.

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