| According to the principle of culpability, a conduct can be penalized only if it is illegal and blameworthy. In a tax avoidance arrangement, the transaction is constructed in a legal form which is true, effective and fully disclosed so that it can circumvents the tax liability that a taxpayer would otherwise bear. Consequently, it is the government's anticipation for the payable taxes in the future arising from the tax law and commercial customs that is damaged by such an arrangement. Therefore, the social harmfulness of tax avoidance is weaker than that of tax evasion, which directly harms the existing taxing right of the state. It is argued that tax avoidance is illegal because the determination of the tax liability based on the legal form cannot present the real taxability and the ability to pay of the taxation. However, it cannot be treated as illegal just because it is in conflict with the underlying value judgment standard of tax rules. Moreover, it is necessary to make a legal valuation to determine whether the legal form of a transaction is in conflict with its economic substance. A taxpayer cannot be expected to disclose the economic substance of a transaction on his own initiative and hold the legal opinion similar to that of the tax authority in his tax return. It is impossible for the taxpayers to determine the scope of application of a particular tax rule and there is no reason to require them to grasp and comply with the content of and the legislative intent behind a tax rule. It may be with an honest misunderstanding of the fact or the law that a taxpayer participates in a noneconomic substance transaction that produces the unintended tax benefit. Therefore, it is not a wise choice to introduce the separate tax penalty into law as a tool to attack tax avoidances. |
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