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Reflections regarding the concept, forms, causes and effects of tax evasion.

The legal regulation of taxes and other revenue budget in Romania is susceptible of violations committed by any of the topics covered by this regulation regulatory law in this area. (1) The many obligations that the tax laws impose on taxpayers as, or especially, the burden of these obligations, stimulated, at all times, taxpayers ingenuity in inventing different methods to circumvent tax obligations. Tax evasion is one of the most studied chapters of tax law, both by technicians and by theorists. However, despite everything about the principles, scale, control and penalties relating to tax evasion words that designate this phenomenon are unclear and the area which explore is uncertain. As such, tax evasion is a notion difficult to specify, in addition, there is no legal definition of tax fraud. (2)

If indeed speaking of fraud, it is often the same as legal or legitimate fraud, illegal fraud, international tax evasion, legal evasion, illegal tax evasion, tax havens or shelters, the abuse of the right to run before tax, free choice of the least impressive track, or underestimation of tax, fraud law or underground economy. (3) Terminological confusion is, in fact, the more important as the same words have different meanings from the author to author. However, tax fraud most often means, stricto sensu, an offense under the law and is distinguished from tax avoidance which could be defined as a skillful use of the opportunities provided by law. (4) But there are cases when some authors assimilate, in part, the two concepts.

Imprecision of vocabulary is compounded through comparisons of the terminology of the laws of different countries, because the names used differ. Thus, in the Anglo-Saxon countries tax evasion means tax fraud, and tax avoidance means tax evasion. The phrase "legal fraud" is actually synonymous with the "tax evasion/" Illegal fraud, pleonastic expression, is required, practical, by authors who use the symmetry with the previous formulation. It means direct and open violation of tax law and it only covers the stricto sensu fraud so it is preferable to use the formula of tax fraud. Evasion involves beyond a violation of the spirit of the law and an intent of the legislator, a direct and deliberate infringement of the rules required for the establishment and tax. Thus is the case of dissimulation of taxable matters simply by the absence of the declaration or by fictitious operations or by creating fictitious companies. (5)

In the case of tax evasion imprecision is even greater, associating three meanings and a double appreciation in terms of legality. The first effect that has been attributed to tax evasion especially between the two world wars, was one in which fraud takes an extensive form, meaning the notion of tax evasion is included in the fraud. The best known effect known as tax evasion is "the art to avoid falling into the attraction field of tax law." According to this perception, tax evasion is somehow assimilated with fraud. The third effect is a generic term and covers all manifestations of "escaping" from the tax. This is a broad definition of tax evasion and fraud that come to embrace even the fraud. Tax evasion is the logical result of flaws and inconsistencies of a bad and imperfect legislation, of flawed methods and procedures of application as well as the improvidence, incompetence and excessive taxation which the legislator is just as guilty as those that cause them thereby to tax evasion. When the tax burdens press too hard on taxable materials, it tends to escape. (6) It is a species of "economic reflex" which is to clear the capital that the taxation authorities want to impose too much. An excessive tax puts on the run taxable material."

Tax fines will not determine the tax payer to declare exactly the taxable incomes, but it will cause him to take one more minute series of precautions to evade his obligations to the state. There is a psychology of the taxpayer never to pay only what cannot fail to pay. (7) The spirit of tax evasion and corruption is found in their occult character8 and is born from the simple game of interest, whatever the tax rate put in charge and which is not only a form of human selfishness and greed. Here is one of the reasons why it should concern us to highlight the methods used by private sector operators.

In the market economy, tax authorities are facing an escapist phenomenon that takes on a mass scale, because of the tendency to remove substantial income from the law. The proliferation of illegal acts, especially those in the field of economic and financial--is a consequence of flaws in the legislation or lack of regulation. In the transition to a market economy, legislative gaps are evident. (9) The means used for avoiding tax obligations are presented in innumerable forms, but they can be divided into two categories: unlawful procedures; untruths or even simple legal shortfalls operation. Tax evasion can thus be illegal, sometimes having a fraudulent feature. The fight by specific legal rules leads, ultimately, to achieving legal and social policy in the tax area. (10)

The concept and forms of tax evasion

Romanian lawyers from the beginning of the century were concerned with defining tax evasion. Thus, Oreste Atanasiu consider tax evasion as represented by "all lawful and unlawful procedures by which all licit and illicit processes by which those interested back out from, in whole or in part, their property, the liabilities established by tax laws." (11) Unlike this definition which covers both licit and illicit means used by taxpayers to circumvent tax laws, in the doctrine (12) it is given a definition according to which tax avoidance is "all deliberate stealing of tax obligations, committed not by direct violation of the law, but by circumvention, by passing them using only apparently real and simulated acts." These legal provisions serve as interim measures as tax fraudulent manipulations made in order to escape, to withdraw, to flee from tax liabilities, somehow bypassing the law, which is apparently respected.

This definition of the tax evasion does not fully cover the facts as it materializes. It mainly refers to legal tax avoidance. Romanian Explanatory Dictionary defines tax evasion as "avoiding paying tax Obligations." Tax evasion is defined as being theft by any means in whole or in part from taxes, from fees and other amounts owed to the state budget, local budgets, state social insurance budget and special extra-budgetary funds by individuals and Romanian or foreign legal entities known contributors (13) Tax evasion is the logical result of flaws and inconsistencies of a bad and imperfect legislation, of flawed methods and procedures of application as well as the improvidence, incompetence and excessive taxation which the legislature is just as guilty as those that cause them thereby to evasion. Close correlation is evident between the two facts: an excessive rate and tax evasion. The way business is done in the avoidance of tax regulations differentiation is made between: legal tax evasion; fraudulent tax evasion;

Legal tax evasion

Legal tax avoidance means taxpayer's action to circumvent the law, resorting to an unforeseen combination and therefore tolerated "by the escape from view." This form of avoidance is possible only when the law is incomplete or has discrepancies. If legal evasion is in question, the taxpayer is trying to position oneself into the most favorable position for the utmost benefit from the advantages of tax regulations. Tax legislation imposes tasks to the private for the state: equivocal cases should be held liable, as it is accepted in the material of the civil law which states: "agreements must be interpreted as favorable to the debtor." (Civil Code, Art. 989). Legal tax evasion is achieved when a certain part of income or wealth of individuals or social groups is evaded from taxation because of the way tax law has the objective of determining taxable income. Rules on tax law require that charges cannot be understood by their extension. So there is not a tax applied by analogy to a situation. It also stopped to consider the scope envisaged by the legislator to complete the flaws of the text. (14)

Taxpayers find some means and exploiting the deficiencies of the "legal" tax provisions to circumvent the law thereby avoid payment of tax in whole or in part, because of the failure of legislation. In doing so, taxpayers remain strictly within their rights and the state can only defend itself by a well-studied, clear, precise, scientific legislation. The only person guilty of evasion production by such means is only the legislator. (15)

Fraudulent tax evasion

Unlike legal tax evasion which consists in maintaining a prudent legal limits theft, tax fraud is committed by flagrant violations of law; by taking advantage of the specific way enforcement is made. By unlawful tax evasion means the taxpayer's action in violation (rape) of legal prescription in order to evade payment of taxes and contributions due the state. (16) Tax evasion is fraudulent when the taxpayer is forced to provide data in support of the declaration under which one determines the rate of tax, resorts to concealment of taxes, to the underestimation of the amount of taxable materials or to the use other means of evading tax payment due.

Causes of committing tax evasion

Cases of tax evasion are multiple. Some authors consider the tax burden primarily excessive, especially for certain categories of taxpayers, excessively which has as right reasons precisely the extent that tax evasion has. (17) In international practice, efficiency of tax system is not measured by the importance of both income tax, as the degree of willingness to tax which is inversely proportional to the degree of resistance to taxes, so with tax evasion. In the second step it has to be mentioned the lack of citizenship education and education of tax payers as well as overzealous enforcement of tax bodies, sometimes prone to exaggeration. One of the major causes of the amplification phenomenon of tax evasion is the tax law system which in addition to being incomplete has large gaps, inaccuracies and even ambiguity, which makes possible that any evasion taxpayer to have a large space to "maneuver" in his attempt to escape from paying tax liability law.

Another reason for tax evasion is the subjective considerations of psychology education and insufficient tax payer. It should also be noted that the lack of a control well organized and equipped with skilled personnel and properly can lead to major forms of tax evasion. Last but not least, it should be noted that one of the important causes of evasion is the lack of clear regulations, accurate and uniform, to restrict this phenomenon and to prohibit it. Tax evasion is damaging both the state and the taxpayer.

Methods of production of tax evasion

Avoiding falls under the tax law and thus avoiding paying tax can be achieved through three main ways: 1. Tax law itself provides an evasion by the tax system favor (appropriate, in particular, arrangements for assessing taxable lump of matter); 2. Failure, pure and simple, of the taxpayer to perform work, taxable transaction or act. This method is common for an excessive income tax (higher tax burden) because the marginal tax rate is very high and the taxpayer prefers to refrain from providing an additional unit of labor. Evasion occurs in this case by substituting the labor leisure relieved by using tax and fiscal system gaps. In this case, tax evasion skill is limited to tax, or to choose how to pay as little tax; 3. Using means and methods that openly violate tax law.

VAT tax evasion would occur through the misapplication of deductions schemes, uncover age of operations that fall within the VAT tax base, paying the value added tax related to advances received from customers, misapplication of zero, avoidance of VAT by the declaration of the duty as temporary imports. Thus, analyzing the functions of taxes and tax evasion phenomenon can be observed that this phenomenon of tax evasion / tax fraud causes several types of effects, namely:18 training effects on state revenues; economic effects; social effects; political effects.

A. The impacts of state income tax evasion on the formation of state revenues

The effects of state income tax evasion on the formation of state revenues are multiple that are considered beyond the immediate and obvious consequence of it (decrease state revenues) in terms of connections and deep influence that these (state income) have on the way in which any democratic state to fulfill its functions. The existence of the phenomenon of tax evasion is binding leads directly to lower the volume of state revenues. This reduction in state revenues automatically determines a lower state budget which cannot cover demand for state financial funds necessary for the performance of its core. This increase in tax rates increases the tax burden, and as we have shown in this work, an increasing tax burden has in addition to many other effects, as a natural consequence of increased resistance to taxation, and therefore an increase share of tax evasion phenomenon.

B. The economic effects of the phenomenon of tax evasion

To fulfill the role and functions of states with a market economy, the budget structure reaches a number of important functions. In the first place state budget is a means of ensuring the overall economic balance. (19) In countries with market economies, economic activity takes place without a strict control of the center. Adopted plans are purely indicative, they are not mandatory for operators. Tax evasion has also economic effects also on the taxpayers who did not meet their tax obligations.

Failure causes budget claims to obtain an increased income for that trader, income that remains to the taxpayer. This income cannot follow the natural course of the business cycle and in order not to have discovered the act of evasion, it must be hidden. Thus, the trader apparently has a higher efficiency, produce satisfactory income, but economically this revenue does not have any value in the economic process and cannot be used lawfully. These unreported incomes will go without any exception in certain disguised bank accounts at home or abroad, or will enter the economy contributing to its development. Development of the underground economy necessarily implies an increase in the share of tax evasion phenomenon.

C. Social effects of the phenomenon of tax evasion

A tax system is always a compromise between the need for input and care for social equity income for payments proportionate to the capacity of each taxpayer. Evading taxes is a serious offense, because the lack of funds provided as budget revenues, the state is unable to perform his duties. On the other hand, directly or indirectly, the individual who committed tax evasion, sooner or later he will suffer. In other order of ideas, the state budget is considered as an instrument of socio-economic objectives through subsidies and tax incentives.

Grants are made both by direct expenditure made from budgetary resources, as it is by giving up some revenue to the state budget due to him under current legislation. Can get some grants both economic and social categories that are considered disadvantaged and need these "helpers" financial. (20) Provide tax incentives relate to the adoption of measures to stimulate certain economic activities, promote the general interest or regional actions, or to favor certain social groups. These measures take the form of tax advantages--exemptions, reductions and delays in direct taxes--which the public authority grants or when they pursue the implementation of government or local programs.

Political effects of the phenomenon of tax evasion

After the Revolution of 1989, when Romania is considered to be a state of law, all electoral campaigns parliamentary, presidential and local had their basic principles in its current policy, namely the fight against corruption, informal economy, the phenomenon of tax evasion and, in general, the struggle for supremacy of law enforcement. Given that, as I stated, tax evasion is an important generator of social inequality and public confidence in the hands of taxpayers it (the phenomenon of tax evasion) is also a factor in generating confidence in the powers current policy period. In addition too many other factors (social, economic, political), tax evasion causes a pronounced distrust of political and administrative powers of the taxpayers, especially those political powers that are responsible for governance.


(1.) Gh. Alecu (2010), Institutions of Criminal Law. Constantza: Ovidius University Press, 358.

(2.) J.C. Martinez (1990), La fraude ficale. Paris: P.U.F., 5.

(3.) N. Hoanta (1997), Tax evasion. Bucharest: Tribuna Economice, 214.

(4.) J.C. Martinez (1990), La fraude ficale. Paris: P.U.F., 5.

(5.) D.D. Saguna (1992), Financial and Tax Law. Bucharest: All Beck, vol.II: 414.

(6.) Gh Alecu (2005), Financial Law. Constantza: Ovidius University Press, 84.

(7.) D.D. Saguna (2001), Financial Law and Tax Treaty. Bucharest: All Beck, 1054.

(8.) Gh. Alecu (2009), Forensics. ed. a II-a, Constantza: Ex Ponto, 423.

(9.) Gh. Alecu (2005), Financial Law. Constantza: Ovidius University Press, 85.

(10.) Gh. Alecu, (2007), Criminal Law. Constantza: Europolis, 27.

(11.) D.D. Saguna, M.E. Tutungiu. (1995), Tax Evasion. Bucharest: Oscar Print, 5.

(12.) D.D. Saguna (2001), Financial and Tax Treaty Law. Bucharest: All Beck, 1056.

(13.) Gh. Alecu (2007), Romanian Tax Law. Constantza: Ovidius University Press, 198-199.

(14.) D.D. Saguna (2001), Financial and Tax Treaty Law. Bucharest: All Beck, 1057.

(15.) id, 1058.

(16.) id, 1058.

(17.) D.D. Saguna, P.Rotaru (2003), Financial and Budgetary Law. Bucharest: All Beck, 228.

(18.) Gh. Alecu (2007), Romanian Tax Law. Constantza: Ovidius University Press, 201-205

(19.) D.D. Saguna (2001), Financial and Tax Treaty Law. Bucharest: All Beck, 1095.

(20.) Gh. Alecu (2005), Financial Law. Constantza: Ovidius University Press, 95.


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Author:Cristea, Ion
Publication:Contemporary Readings in Law and Social Justice
Article Type:Report
Geographic Code:4EXRO
Date:Jan 1, 2012
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