Tax avoidance uses legitimate techniques: contributing to pension plans, using available deductions and credits, structuring real-estate investments in tax-efficient vehicles, choosing tax-friendly jurisdictions for residency or incorporation. Modern systems increasingly include general anti-avoidance rules (GAAR) that can override arrangements lacking economic substance.
Tax evasion, by contrast, is fraud: hiding income (cash work, undeclared accounts), inflating deductions, fake invoices, dual bookkeeping, or willful misclassification. Most jurisdictions punish tax evasion with criminal penalties — fines up to several times the unpaid tax, plus prison sentences. Switzerland is unusual in distinguishing simple tax evasion (a misdemeanour) from tax fraud (a crime requiring forged documents).
Between the two sits 'aggressive tax planning' — structures that are technically legal but contrived to defeat the spirit of the law. The EU's DAC6 directive requires intermediaries to report cross-border arrangements with hallmarks of aggressive planning. Many post-BEPS rules (anti-hybrid, GAAR, principal-purpose tests in treaties) target such planning.
A self-employed lawyer maximising pillar 3a, claiming legitimate home-office expenses and donating to charity practises tax avoidance — legal. The same lawyer pocketing cash fees and not declaring them practises tax evasion — illegal, with penalties up to triple the unpaid tax plus criminal record.