How to save on taxes?

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To save on taxes legally you have to avoid misinterpreting the tax laws and even better hire a specialist in international tax matters. As a general rule, people have to pay their taxes wherever they reside. For an European Union citizen it is completely legal to have a current account in any other country, including tax havens. However, there is an obligation to declare to the Tax Agency and to pay the corresponding taxes on profits, interests and dividends related to the corresponding equity. The evasion or avoidance of taxes is one of the main reasons, if not the greatest one, of the use of low taxation territories

It is also assumed that a person must seek, by all legal means, an opportunity to pay the least possible amount of tax trying to get a tax savings. In the words of Antonio Durán-Sindreu, President of Tax Advisors "the right to tax planning, a right recognized by the Constitutional Court itself and, well understood, does not mean anything other than the individual's freedom so that within the limits of the law should plan your activity in a way that allows you to pay the least possible taxes." This phrase is about "economics of choice and options", referring to the opportunity to choose any commercial or financial operation that would lead to tax saving on the part of an individual or a company. The job and the main goal of the company formation agent is to find the best option for his client that would allow him to save on tax and increase his profits when registering an offshore company. 

There are two possible actions that can be taken to achieve tax saving: 

Tax avoidance 

This action is legal and consists of organizing commercial activities creating a tax plan, in a legal manner, so that less tax are paid therefore achieving maximum tax savings. Any taxpayer has the legal right to reduce the amount he must pay for his taxes, or even to avoid them in full, by the means that the laws allow. Thus, companies structure their commercial activities to legally save as many taxes as possible. International tax planning is a very handful tool schemes when saving on tax, where offshore activities can play a big role. 

Tax evasion or tax fraud 

According to European Union legislation, tax evasion occurs when a taxpayer deliberately avoids paying the tax. The usual is the hiding of benefits, obtained legitimately or illegitimately, or the concealment of the identity of the owner or final beneficiary of an asset or entity. In some countries, many of which are offshore territories, tax evasion in that took place in another country is not a crime that can be prosecuted by its courts and, therefore, its authorities refuse to collaborate with the authorities of the defrauded country in taxpayer persecution. 

The difference between avoiding paying more taxes than one could pay (fiscal avoidance) and fraud or tax evasion should not be overlooked, however it may depend on criteria of interpretation of taxpayer´s actions by the tax authorities.  

Although each taxpayer of any country has the right to carry out its commercial activities in such a way that the greatest benefits are obtained with maximum tax savings, sometimes the tax authorities go further and consider that there may be abusive interpretations of the declaration obligations. Usually, this situation takes place when commercial activities are carried out within legal coverage that allows avoiding taxes, even if there is no infringing intention. In this case, it can be interpreted that the fiscal obligations are abused to minimize the tax burden and save taxes, and it is considered tax law fraud. It could then be a tendentiously elusive action, and therefore, prosecutable by Tax agency. The authorities want to prevent operations that seek only tax savings and have no commercial justification. It can affect, for example, corporate restructuring carried out with the sole purpose of avoiding taxes. As this article insists, any operations related to tax saving must therefore have a solid economic motivation. 

Many taxpayers, especially those with great fortunes, seek savings by not carrying out commercial activities in high taxes countries and transferring their funds, and even their residence, to a tax haven. This is a direct way of reducing or eliminating tax obligations altogether. However, most people cannot move to another country because of work and affective reasons: family, friends, and way of life. Therefore, when they see that the tax burden increases they try to avoid taxes by remitting their funds to other jurisdictions. This way of acting is favored because the tax trends go towards the indirect tax, on the merchandise that is acquired or the service received, rather than on the tax on capital income, which is always easier to delocalize. It costs more to collect taxes on goods that can move quickly to another place, or that are in fact somewhere else. This is why it is so complicated, for example, to tax the transactions that take place on the Internet. 

On the other hand, most of the tax evasion and avoidance in the developed economies, and also in the undeveloped ones, come from the underground economy, which grows constantly in all the developed countries. In conclusion, there are always taxpayers that are willing to change residence and as the history tells in some countries, the introduction of special high taxes on large fortunes has been followed by the emigration of wealthy citizens.