A technicality that allows a person or business to avoid the scope of a law without directly violating that law. Loopholes are crucial to tax avoidance since they are the mechanism by which people ‘get around the law' – which is what tax avoidance involves.
The manipulation of tax loopholes results in outcomes that might appear legal but which conflict with the obvious intention of legislators.
General Anti-Abuse Rules and general anti-avoidance principles are intended to tackle the use of tax loopholes, but not always very effectively as yet due to the reluctance of tax authorities to litigate using such rules and principles.
See also arbitrage and regulatory arbitrage.
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