05.09.12

Tax Evasion, Avoidance or Mitigation: That is the question!

Hilary Reid
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Tax Evasion, Avoidance or Mitigation: That is the question!

Wikipedia tells us that tax evasion is the term given to efforts to avoid paying taxes by illegal means while tax avoidance is the term used where the payment of tax is avoided or reduced by means that are within the law. Some persons also sometimes speak of tax mitigation, almost as a subcategory of tax avoidance: meaning reduction of tax which the legislators accept as legitimate as distinct to methods of avoiding tax which exploit unintended loopholes in the law with no commercial purpose.

With the widening of the tax net here in Jamaica and the possibility of more taxes on the horizon, Jamaicans may be ready to take a closer look at their tax structure, both in relation to their individual needs and for their business. The principle that "Every man is entitled if he can to order his affairs so as that the tax ... is less than it otherwise would be..." (Lord Tomlin, in the UK House of Lords case, IRC v. Duke of Westminster (1936) 19 TC 490, [1936] AC 1) has been considerably restricted over the years by a line of cases designed to counter tax avoidance.

Tax evasion therefore is illegal no matter how you look at it. On the other hand, the effectiveness of tax avoidance and tax mitigation strategies may vary with the result of failure being a requirement to pay taxes.

In the context of the requirement to pay income taxes, that is, a tax on the income earned by persons living in the particular country, one may be inclined to think, that an easy way to legitimately mitigate against income taxes is simply to make sure that you earn some of your income outside Jamaica. We know that the income earned in Jamaica will now be taxed at the rate of 25% for individuals and most companies (leaving out the particular issues of thresholds, deductions and allowances) but if some of the income is earned outside Jamaica, will it be possible to save some taxes? The short answer is POSSIBLY!

In Jamaica, INCOME TAX IS PAYABLE ON YOUR WORLDWIDE INCOME. It therefore is not enough to simply look at what income is being earned in Jamaica but consideration must also be given to income earned outside of Jamaica. How and where that income is earned therefore becomes an important question. Jamaica has double taxation treaties with several countries which allow for tax reliefs which extend to residents of those countries. The extent of the relief will vary depending upon which country is involved. It is important to note however that to be entitled to these reliefs, you must be deemed to be resident for tax purposes in the particular jurisdiction. Close consideration must therefore be given to whether you would fall within this category. Even if you are a company incorporated in that jurisdiction, it is possible that this may not be sufficient to be deemed to be "resident for tax purposes".