Criminal Law, Tax Evasion, Shams, and Tax Avoidance: Part II – Criminal Law Consequences of Categories of Evasion and Avoidance
New Zealand Journal of Taxation Law and Policy, Vol. 2, pp. 59-74, 1996
18 Pages Posted: 12 May 2010 Last revised: 15 Apr 2015
Date Written: 1996
Tax evasion can occur by taxpayers failing to disclose income or by creating sham transactions. Whether a taxpayer’s returns are evasive may depend on his state of mind. In Snook v. London West Riding Investments  1 All ER 518, 528-529 a sham was defined as acts done or documens executed which are intended to give the appearance of creating legal rights and obligations. Shams are used to hide tax evasion and other kinds of fraud. Transactions may be genuine and not shams, but still be impugned. Reasons include mislabelling, context, the affect of related transactions, and the arguments of logic.
A taxpayer may be guilty of tax evasion, and of an offence under section 229A of the Crimes Act 1961 if he knowingly undertakes a scheme that is void for tax purposes by virtue of section BB 9 of the Income Tax Act, if he fails to disclose the scheme to the Commissioner, or if he under-declares his income because he returns it on the basis that the scheme is effectual, although it is in fact void. That is, in some circumstances, a scheme may amout to both avoidance and evasion.
Keywords: Income Tax, Income Tax Act 1994, Tax Evasion, Tax Avoidance, Tax Mitigation, Fraudulent Evasion, Innocent Evasion, Sham, Criminal Law, Crimes Act 1961, Mislabelling, Self-concealing Transactions, Logic
JEL Classification: K34
Suggested Citation: Suggested Citation