The Fight Against “Car Tax Dodgers”

US law distinguishes between the terms “car tax avoidance” and “car tax evasion”. Avoidance is an attempt by the taxpayer to evade tax obligations without breaking the law. He or she often uses gaps in the Internal Revenue Code or income tax provisions. By contrast, car tax evasion is illegal. Car tax quotes and car tax renewal dates vary by state. The DVLA says it’s important for drivers to get insurance and tax. If they don’t, the DVLA can give charge them a £100 fixed penalty notice and clamp their car.

At the same time, as experts note, the boundaries between “avoidance” and “evasion” are blurred due to offshore schemes, which are often too complex, and it is not always possible to identify them. Analysts estimate that the United States loses about $100 billion in revenue annually to tax havens. The US Senate Finance Committee called offshore “the most serious problem of US tax discipline.”

Tax havens can be legal tax evasion or illegal tax evasion. But both are the reason for the federal budget deficit. In the 2001 reporting year, the American Internal Revenue Service calculated that of the $30 billion in corporate income taxes that legal entities did not indicate in their statements, from $10 billion to $15 billion fell on completely legal schemes using gaps in legislation. As a result, the American government had to find new means to identify loopholes that were used by cunning entrepreneurs.

Form versus content

Back in 1935, the US Supreme Court heard the case of Gregory v. Helvering about corporate income taxes. The court decision became precedent and formed the basis of the doctrine of economic essence. According to this doctrine, a taxpayer is entitled to a benefit only in cases where the transaction leads to a significant change in his/her economic situation. Such a rule was supposed to weed out fictitious transactions, the purpose of which was to obtain tax deductions.

At the 111th Congress of the US Congress in 2009, it was decided to codify the provisions of this doctrine. Congress has introduced five bills. As a result, the codification was reflected in paragraph 7701 (o) of the Tax Code. The regulation determined a transaction with an economic entity according to the following criteria:

• the transaction significantly changes the economic situation of the taxpayer;
• by concluding the transaction, the taxpayer pursues any significant goal, not just the tax effect.

Contingent liabilities transactions

Many anti-tax evasion reforms have affected special contingent liabilities deals. US law provides for tax deductions for a number of contingent liabilities.

The US Internal Revenue Service considered such transactions to be a way to avoid taxation. In 2000, the US Congress passed Tax Code 358 (h). It concerned those cases where the corporation received a large underlying asset in exchange for shares and assumed contingent liabilities. The adopted provision required the taxpayer to reduce the value of the shares received in the transaction by the amount of contingent liabilities assumed by one of the parties to the concluded contract. Thanks to this measure, tax deductions were no longer increased due to the sale of such shares.

Double taxation

American companies pay tax on worldwide income. However, they can use the offset to get rid of double taxation. But here, too, some companies have found schemes that are convenient for themselves. They “shared” the tax credit, building the deal so that several taxpayers paid tax abroad, and in the “metropolis” the credit was received by a legal entity whose dividends from foreign companies were already exempt from taxation under US law. As a result, due to a gap in legislation, the company received additional funds from the budget. This scheme involved the use of several subsidiaries.