The act of avoiding taxes, either by simple neglect, or by taking illegal action to reduce or eliminate the amount of taxes owed the government.

To clarify this a little, "tax evasion" specifically refers to illegal efforts to avoid paying tax. As mcteague notes above, this may involve simply withholding tax legally due by filing an incorrect tax return, claiming tax relief to which you are not entitled, or diverting your money illegally in such a way as to make your tax liability appear smaller. A typical example would be hiding money in an offshore bank account, making it difficult for the government to trace.

The exploitation of legal loopholes to actually reduce one's tax liability is known as "tax avoidance", although the line between the two is often very blurry. A typical example of tax avoidance is the wheeze known as "tax exile". A businessman doing business in a country with a relatively high tax burden moves his residence to another country with relatively low levels of personal taxation. However, his original country of residence will normally allow him to spend just under half the year there without incurring any tax liability. This means he can effectively live in his original country of residence without paying any tax to its government, as long as he spends plenty of long weekends abroad.

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