Consumption taxes - specifically if implemented as a VAT, as in Europe - are effectively impossible to dodge
Very funny. In fact, VAT is actually the easiest tax-dodge of all: just buy through a business and you can claim VAT relief, getting an effective 20% discount on everything. Say you are a graphic designer with your own Ltd company: you can now buy your Spider-Man DVDs, file them under "research expenses", and get 20% back (or whatever VAT is in your country). There are guidelines on what is acceptable, of course, but they are enforced only to a degree. Where they are strictly enforced, it's exactly because the system itself is otherwise wide open for abuse by individuals.
As soon as your business is large enough and diversified enough, abuse cannot realistically be detected -- your 3-people agency will indeed need DVDs for research... and printers, iPhones, vacuum cleaners, dishwashers... most small-firm owners and CEOs never pay VAT, as simple as that. VAT is a tax on fixed-income employees, an incredibly regressive tool. Its popularity is yet another cause of the widening disparity between have and have-nots throughout the continent.
In Israel, who runs a european-style welfare state, you are supposed to only get the VAT relief on stuff your business sells forward (the idea being that VAT is only ever paid once on every item).
People still abuse this, claiming e.g. that the Spiderman DVDs used for "research" ended up inside the final product and thus qualifies for tax relief -- but if they audit you, that might not fly, and a VAT audit is one of the easiest way to get in real legal trouble.
Guidelines vary between countries, but when you move from classic trading/manufacturing to services, they simply cannot be applied literally -- i'll need my computer to make software, but i won't sell it over, and i'll get vat relief anyway; and obviously i'll need an ipad or three to test my website, etc.
This is why vat auditing is so ruthless: because it's routinely abused by everyone, so the enforcers have to be harsh to maintain a shred of credibility.
I'm not saying VAT is bad per se (it's just another tax), only that is a clever way to tax consumption by fixed-income employees in a regressive way, which is really not what you want if you're trying to make the system fairer for, er, those fixed-income employees.
Very funny. In fact, VAT is actually the easiest tax-dodge of all: just buy through a business and you can claim VAT relief, getting an effective 20% discount on everything. Say you are a graphic designer with your own Ltd company: you can now buy your Spider-Man DVDs, file them under "research expenses", and get 20% back (or whatever VAT is in your country). There are guidelines on what is acceptable, of course, but they are enforced only to a degree. Where they are strictly enforced, it's exactly because the system itself is otherwise wide open for abuse by individuals.
As soon as your business is large enough and diversified enough, abuse cannot realistically be detected -- your 3-people agency will indeed need DVDs for research... and printers, iPhones, vacuum cleaners, dishwashers... most small-firm owners and CEOs never pay VAT, as simple as that. VAT is a tax on fixed-income employees, an incredibly regressive tool. Its popularity is yet another cause of the widening disparity between have and have-nots throughout the continent.