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David Beckham, George Michael and Katie Melua are among several big names accused of tax avoidance! Here's how to avoid a similar situation

by , 14 July 2014
These top personalities are among more than 1 600 people named in a tax avoidance scheme worth billions. They've allegedly been sheltering their money in schemes which generate large artificial losses offshore and allow them to avoid tax on other income.

This incident has once again cast the spotlight on tax avoidance. Continue reading to find out how to avoid finding yourself in a similar situation unwittingly.

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Ask yourself these two questions before you enter into a transaction so you can steer clear of tax avoidance claims

Tax avoidance usually arises when entering into business transactions.

To play it safe, we recommend you ask yourself these two questions before you enter into a transaction so you can ensure everything is above board.

#1: Did I enter into an arrangement?

The Practical Tax Loose Leaf Service defines an arrangement as, 'a transaction you enter into for the main purpose of gaining a tax benefit and wouldn't be considered a transaction expected in the normal course of business.'

Legally, you can structure your business tax affairs to pay less tax, but SARS won't let you completely avoid your tax obligations. It'll look for transactions that don't appear to give any benefit other than for tax purposes. So if you enter into an arrangement, that's tax avoidance.

#2: Is the transaction abnormal?

A transaction is abnormal if it's unusual and differs from what would normally apply in a commercial setting.

For example, you set up a transaction with a series of companies where you remove profits from these taxpaying companies and put into an entity that's exempt from tax, such as a provident fund.

This is abnormal because the taxable companies are shifting profits to a tax exempt entity, for no other reason than to evade tax.

Tax avoidance is a serious matter. You could face criminal prosecution if you're found guilty of it and penalties up to 200%. So whatever you do never carry out transactions in your company with the main aim of getting a tax benefit.

PS: For more questions you must ask before you enter into a transaction, check out the Practical Tax Loose Leaf Service so you can avoid tax avoidance claims.

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