Tax arbitrage is basically a method in which a business owner will take advantage of the different tax systems present in the country to pay less tax.
He does this legally, as he change the way he pay tax or does the business in a way that reduce overall tax money.
Many Bigger companies place their high profit margin business in a country with low tax slab, and low profit business in high tax regions. This way they save more money even remaining in the legal compliance of the state or nation. It is also called as Geographic tax arbitrage.
At Individual level, a person if buy and share in the crypto such as bitcoin then he has to pay 30% tax on earning. But, if he does the option trading of Bitcoin in India then he will not get that 30 percent tax. Instead his income will be considered as business income and as per the tax slab of country. So, this is the best way for people who want to invest in the bitcoin but dont want to give more tax. This is legal process as it is given in their government rule (GR).
Other than this, some one may prefer to invest in a long term to avoid loss of short term tax system. As long term capital gain tax is much lower than short term tax system.
Timing arbitrage – In timing arbitrage, the business delay his operations and financial interactions to avoid income tax slab of specific year to make tax income less in a specific year, and adjust it to next year where earning is quite lessser.
Doint tax arbitrage is fine, but it should follow the rules made by the government. Otherwise it comes under the tax envasion practice.
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