Variation of taxes and reducing them is the case when we need to be aware of some rules to stay away from jail and not to lose millions. While working on a specific transaction lawyers need to identify all the risks to clients and the company. So it is necessary to know the method of indication of risks. For example, the Supreme Court of Georgia has discussed the issue of liability of a director and a partner when they abuse tax reliefs. The aim of the present work is to research and detect the limit between tax avoidance and tax planning according to the decision of the Supreme Court of Georgia (6th May of 2015), also determine if there is enacted any kind of a special test by this decision. This includes liability of a company, its director and partners
when they use tax reliefs, also criminal liability of them and the risks that appear on the local market because of the explanation formed by the court. In order to reach the outlined aim perfectly, there are used the methods based on comparative analysis and synthesis, generalization, abstraction, analogy and system approach in the present work.
Pay less taxes as it is possible – of course this is a legitimate goal. According to the 94th article of the Georgian constitution the payment of taxes shall be obligatory in the amount and in accordance with a procedure established by law.1 In the organic law on economic liberty this wide issue turns specific: we read there that “the liberty is the main principle of the economic
policy that is expressed in a small government, responsible macroeconomic policy and low taxes”2. This means that if minimization is determined by law then it is possible to lobby with your taxes in such a way that allows you to undertake less tax obligation. Accordingly, the basic questions that shall be responded with the help of this research are:1. Can we reduce taxes and how? 2. What is the difference among tax evasion, tax avoidance and tax planning? 3. What does the principle of abuse of law mean in tax law? 4. Is there any test that indicates whether the specific case is about tax avoidance or tax planning? 5. What kind of liability lies with companies, directors and partners if they decide to reduce taxes? Who is responsible for a concrete action and what is this liability based on legally? 6. What shoud a director do when he can reduce taxes – act in favor of company’s interests and be under the risk of criminal liabliy or pay more and
be accountable to the partners personally? The three key forms (terms) – tax evasion, tax avoidance and tax planning are not defined well in Georgian legislation. For example, Tax evasion – here we come across the cases when violation is obvious: a person does not use a cash machine, carries out illegal accounting and, accordingly, directly breaks the law. In this case not only does the person have to pay basic amount, but also fine and penalty. At the same time criminal liability lies with him.
Tax avoidance is an intermediary element, here a company does not violate written law and obeys formal demands, but activation of an illegal structure/scheme causes the results that have not been intended by the legislator.4 So, in order to understand the will of the legislator which the specific relief is based on, we should use legal texts, its history and explanatory notes.Tax planning is when a taxpayer as a result of his legal actions reaches the aim of the legislator about enacting a certain relief and neither criminal nor administrative liability lies with him.5 At the moment when there are a lot of questions about the terms, Georgia does not have various judicial practice related to them. In Criminal Code of Georgia we meet a term “tax avoidance” in Georgian language and “evasion of taxes” in English language, so this leads to big problems on the local market. 6 If we take into account the amount that is enough for the action to be considered as a crime7, every potential case may be recognized as a crime. Accordingly, every director and/or a partner is a potential accused, if his decision is not considered by tax authorities as tax planning.