Difference between Tax Avoidance and Tax Evasion and Why Tax Avoidance Is Legal and Tax Evasion Is Illegal

Difference between Tax Avoidance and Tax Evasion and Why Tax Avoidance Is Legal and Tax Evasion Is Illegal

Outline

1. Background Section / Introduction (explains what you are going to do and why the topic is relevant; shows how your proposed work fits in with what is already known)
2. Research Question, Aims, Objectives

• Methods Section

• Approach to theory (theory testing or theory expanding)
• Type of research strategy (survey & case study)
• Secondary data analysis: Literature Review
• Primary data analysis: Qualitative (interviews) & Quantitative (questionnaires)
• Ethical consideration
• Reliability and validity

1. Concluding part that draws out the key points

Introduction

The relevance of the chosen scientific topic is especially acute in the last few years when the issue of social justice began to arise more often. The economic concept of tax avoidance is not only related to purely domestic business processes that are only comprehensible to specialists but to all people who are concerned with such phenomenon as the tax system and its effect. Apparently, that every resident of a country is directly or indirectly affected by the tax system and its derivatives. All residents are visitors to state institutions that are held at the expense of taxes, receive state services (which are paid for at the expense of taxes), etc. Thus, the tax system applies to every citizen of a country, regardless of their social status, gender, or age. Taking into account that the above-mentioned concept of tax avoidance directly affects the shortage of state tax funds, which in turn affects the quantity and quality of services provided by the state, this concept is indirectly important to all people, including those who do not have their own businesses or work in this field. Taking into account the aggravation of the topic of social justice and the importance of reducing the gap between the rich and the poor around the world, this topic is particularly relevant and justified. In this research proposal, the author will tell how he intends to build and carry out his scientific work devoted to this topic. In the following sections of this proposal, the author will focus on the methods and approaches that he intends to apply when writing this scientific paper. The largest chapter will be devoted to collection and analysis of data since this is one of the most important elements of any work on the basis of which it is possible to come to own conclusions and recommendations (IN Accountancy Limited, 2012).

 

 

 

II

Area of research

This research work falls within the scope of research on state economic regulations and taxation. This work is carried out within the framework of the Bsc Business and Accounting program of study.

Research topic

The research compares such concepts as tax avoidance and tax evasion. The author is interested in the ratio of these two concepts in public life. Namely, if tax evasion is an absolutely illegal and reprehensible concept, how does this relate to tax avoidance? If this concept is an antithesis to tax evasion and is completely legal, why such a large amount of public resonance and heated debate are the eternal attributes of this economic phenomenon? The author would like to understand the legal component of this phenomenon as well as its informal component, namely, the negative economic effect.

Research question

The main research question of this work is, “If tax avoidance is legal, why is it such a hot topic?” The name taken from another article devoted to this contradiction fully reflects the essence of this scientific problem.

Research aim and objectives

The main purpose of this scientific work is to confirm or disprove the theory of correctness of such economic phenomenon as tax avoidance. The classical theory (scientific approach) associated with this contradiction is the approval of tax avoidance and the natural rejection of tax evasion. It seems that this is a fairly simple concept that should work in any circumstances and not to disturb the spirit of the law and attitude of people; but in practice, more and more often, people protest against this state of affairs.

In such a way, taking into account the main reason for writing this scientific work, the author sets several intermediate aims, namely:

• to understand why economic preferences are usually given only to large and well-known companies and individuals while they are inaccessible to the majority of the population;
• to understand how these organizations use their position for incomplete payment of taxes; understand how and why they do it; whether social responsibility and public resonance caused by such actions disturbs them;
• and finally, to understand how exactly tax avoidance affects economic life: negatively, neutrally, or positively; if the latter, to understand why many people are dissatisfied with today’s state of affairs in this field.

Research strategy

The research strategy of this work is to collect and analyze primary and secondary data directly or indirectly related to this topic. Based on the results obtained, the author would like to test the classical approach (theory), explaining the interaction of such concepts as tax evasion, tax avoidance, and tax compliance. Based on the research results obtained, the author would like to build his own conclusions and recommendations which will be as objective and relevant as possible at the time of the study. The author would also like to introduce a new vision of solving the problem of social injustice and the problem of narrowing the gap between the poor and the rich, which, according to the author, is a direct consequence of the problem of tax avoidance.

III

Methods Section

The largeest part of this research proposal is an overview of the methods applicable in obtaining and processing the necessary data for constructing conclusions and recommendations. The author will use primary and secondary data since this will allow for an effective assessment of the current situation related to the problem of tax avoidance. Among other things, the author would like to test the classical theory related to the attitude of society towards the problem of avoidance.

3.1. Approach to theory

Modern social sciences have two main approaches to the theory used. The theory is the basis of any scientific work. We build our own conclusions and recommendations on the basis of a theory proposed by someone or created by us. There are two main approaches to the use of theory in any scientific paper: the first approach is to test the already made theory that is used in the work. This approach is more applicable to Master’s theses because it is more simple and objective. With this approach, the student confirms or refutes an already existing theory with the help of their research. The student does not need to spend much time and effort to create their own theory; so they can focus on collection and analysis of facts that will help them to confirm / disprove the existing theory that explains a certain scientific phenomenon. The second approach to a theory consists in creation of one’s own theory and is a more complex science-intensive process that is typical for PhD candidates and researchers. This approach relates to development of own theory that explains a specific scientific phenomenon. For an already existing theory, the author will use the classical approach of economists consisting in justification of the concept of tax avoidance. This theory speaks about the admissibility of tax avoidance in view of its realism (unlike the phenomenon of tax compliance) while public discontent relates to strengthening of socialist policy in a world that is not economically justified but, rather, populist. Thus, the author will use the example of refutation or confirmation of this theory to formulate his own principles and conclusions, which would objectively describe this topic (Saunders et al., 2012).

3.2. Data

In this paper,  both primary and secondary data related to the subject matter of the topic under study will be employed. This is for the purpose of achieving maximum objectivity in the course of his work. Using only primary data is unlikely to help achieve objectivity while secondary data may not be relevant or corresponding to the concrete situation. In such a way, a combination of the relevance of primary sources as well as the objectivity and depth of secondary data will help to obtain comprehensive and thorough data necessary for this study.

Primary data are the data that did not exist before and which are collected for the first time for a specific purpose. For this research, various primary data will be collected through interviews, surveys, case studies on this topic among officials as well as an elective audience that is not indifferent to this issue. Primary data are valuable in carrying out this study, which in turn involves a number of limitations and difficulties, namely the time and technical costs necessary to collect such data; objectivity and correct sampling of respondents; access to corporate information and permission for interviews, etc. (Bryman and Bell, 2011).

Secondary data are the data that already exist and were collected earlier for other purposes. For secondary data, subject literature as well as articles in scientific journals and journalistic publications, researches of other authors, official documents, statements, and statistics will be used (Ibid).

Primary research is divided into qualitative and quantitative.

3.2.1. Qualitative research methods

Qualitative research methods are based on collection and analysis of non-numerical data and are used when it is necessary to find out opinions, beliefs, motivations, and criteria. Typically, questions such as “how?” and “why?” are usually used. Qualitative data are less ambiguous than quantitative, so their usefulness largely depends on the qualification of the researcher. Qualitative methods include group discussions, individual interviews, case studies, etc.

Group discussions (focus groups). Focus groups are small groups (about six to eight people) selected from typical representatives of the study segment. The attention of all members of the group is focused on a particular topic or issue that is familiar to all members of the group. This topic is discussed within a group for a short time according to a prearranged plan.Tthe author will also make a video or audio of this meeting in order to be carefully analyzed. The focus group can be useful for understanding the public attitude to this problem, understanding the social origins of the issue as well as the relationship of ordinary people to companies that implement tax avoidance, etc (Kervin, 1992).

Individual (in-depth) interviews. This method involves one-on-one conversation between a highly qualified interviewer and a respondent. The topic of the interview is usually extensive. The interview lasts about an hour and is usually recorded. The questionnaire is not used; instead, a list of topics is used while the conversation is conducted to find out the respondent’s opinion on the issues of interest to the interviewer. It is useful in the cases when it is important to understand the nuances of human behavior, probe the motivations, determine the needs, or when the discussion is confidential. It has been found that in individual (in-depth) interviews more interesting ideas are generated than in through other methods (Ibid).

Case study. This method involves the analysis of real and simulated specific situations related to the problems under study. In this paper, known cases of tax evasion, tax avoidance, and tax compliance will be analyzed. The research will also analyze the behavior of various companies and public persons during such cases as well as the reaction of the public and various public and other organizations to them. Among other things, the author will try to simulate the possible development of events after the adoption of various laws (from incentive to prohibitive) concerning such economic phenomenon as tax avoidance (Ibid).

3.2.2. Quantitative research methods

Quantitative research methods are based on the fact that people’s behavior and their relation to something can be expressed with the help of numerical values, which are then analyzed using statistical methods. In the research, the poll method (survey) will be used as the main quantitative method for collecting primary information.

Survey is the most widespread form of data collection in business and marketing research. Survey (questioning) is understood as studying the position of people or obtaining their opinion on any issue. Surveys are used in about 90% of business or marketing research. Surveys can be conducted orally – through personal contacts, by phone, and in writing – by mail or e-mail. In a written survey, respondents receive questionnaires, which they must fill out and return to the researcher (Blumberg et al., 2014).

In order to improve the quality of data collection, the following principles will be followed:

• Observe certain requirements for formulating questions (questions should be simple, clear, unambiguous, and should not influence the answer).
• Follow certain principles of building questionnaires (the order of the questions: from simple to complex, from general to special, from non-binding to sensitive; first, questions that establish trust, then, questions on substance, next, control questions, and finally, questions about personality).
• Try to increase the percentage of return on written surveys by encouraging (taking into account the costs as well as possible embellishment of answers from gratitude), sending a cover letter in order to awaken interest, a telephone warning about the sending of questionnaires, the application of a marked envelope for an answer, attractive design, and small volume of letter.
• Carefully work with interviewers (give detailed instructions on how to conduct work, monitor them, for example, with the help of a subsequent telephone interview).

3.3. Ethical consideration

Ethical consideration is an important part of any research. The basic ethical principles of this study include the principle of benefit from research activities, the principle of fair selection of participants, and the principle of respect for the individual and the autonomy of the subject (Saunders, et al., 2012).

The principle of benefit from research activities implies that this scientific research will either not bring any harm to its participant or the benefit from participation in the study will exceed any harm from participation in it.

The principle of fair selection of participants means that any person who meets the selection criteria (for example, gender, age, social status, etc.) should have the same chance of participating.

The principle of respect for the individual and the autonomy of the subject implies that the research participant should be provided with sufficient information about the research and must independently and voluntarily decide whether or not to participate in the research project. The author undertakes to explain the research objectives and describe the actions that the respondent will have to perform (for example, completing the questionnaire, verbal answers to questions, etc.). In addition, the researcher should describe the potential risks and benefits associated with participation in the study, emphasize the voluntariness and confidentiality of participation in it.

The peculiarity of the ethical consideration of this study is the particular scrupulousness of this issu, since the receipt of primary data within the framework of this study implies the receipt of exclusive, almost secret, economic and personal information that is sometimes unavailable even for state tax and other authorized bodies. The author will try to get unique insider facts that will clarify the tax policy of well-known companies. Therefore, confidentiality and ethics are prerequisites of this research project. Disclosure of sources or other personal information in the study may lead to its complete cessation, and therefore, the author assumes all responsibility for the ethical consideration in this study (Ibid.).

3.4. Reliability and validity

The reliability of information within the framework of this study is a characteristic showing the probability of an accidental error in its conduct. Some errors in the measurement and evaluation of reliability are not taken into account if their value is known and constant or varies according to a certain known law.

In order to ensure greater reliability of this study, the author will apply methods such as retesting, use of alternative forms (the same question is asked by using different measurement scales or other forms of interrogation), or checking for internal consistency. In the case of internal consistency testing, for example, the method of testing reliability by dividing in half can be applied. In this case, the elements of the scale are divided in half, and the correlation between them is calculated. There is also a method for testing reliability using the alpha coefficient, which is equal to the average of all possible half factors of the elements of the scale.

The validity of this study is a characteristic that determines the degree to which the obtained data corresponds to the real situation and to the present state of affairs. Information obtained during the research can be reliable but not valid and vice versa. Unlike reliability, validity implies complete absence of measurement errors and takes into account only the relation of information to reality.

In order to ensure validity, the author will use only the scientifically verified data of authoritative researchers. When obtaining primary data through his own research, the author will adhere to the principle of maximum objectivity (Blumberg et al., 2014).

Conclusion

The decline in social spending by governments, constant job cuts, and the still huge gap between the rich and the poor around the world provoke us to consider the economic phenomena that contribute to this. The author of this study believes that one such reason may be the economic phenomenon of tax avoidance. Large companies and well-known personalities regularly become the subject of heated discussions because of their desire to pay fewer taxes although this is absolutely legal. In such a way, the author wants to understand the reason for such discontent, whether tax avoidance is really the reason for the decrease in the economic efficiency of countries. This research work will help to shed light on this issue as well as compare such phenomena as tax avoidance and tax evasion, that is, to understand whether tax avoidance can be illegal similar to tax evasion.

 

References

Blumberg, B., Cooper, D. and Schindler, P. (2014). Business research methods. London: McGraw-Hill Education.

Bryman, A. and Bell, E. (2011). Business research methods. Cambridge: Oxford University Press.

IN Accountancy Limited (2012). If tax avoidance is legal, why is it such a hot topic? Website. Retrieved from http://www.in-accountancy.co.uk/2012/12/if-tax-avoidance-is-legal-why-is-it-such-a-hot-topic/

Kervin, J. (1992). Methods for business research. New York: Harper Collins.

Saunders, M., Lewis, P. and Thornhill A. (2012). Research Methods for Business Students. 6th edition. Pearson Education.