is the act of profiting from differences in how
Tax shelters are often used to take advantage oftax arbitrageopportunities. For example, a person or business mightopenan account in a certain country or create a certain legal structure so that theincomethat flows from theseinvestmentsis taxed at a more favorabletax rate.
The simple fact that thedifferent types of income streams at different rates creates tax arbitrage opportunities every day. For example, investors might choose toputextracashintostocksrather thanbondsbecause the tax rate onis lower than the tax rate on earned interest. In the broadest sense of the word, anytax planningcan be viewed as tax arbitrage.
Tax rules and guidelines are complex, and few people want to pay moretaxesthan they have to. Many people and organizations structure transactions and accounts in the most advantageous way possible.
However, there is a fine line betweentax avoidanceandtax evasion. Some types of tax arbitrage are illegal, which is why interested parties should always get advice from qualifiedtax advisors.
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