Tax Evasion is when tax payers avoid paying taxes by illegal means, such as intentionally misrepresenting the truth of his/her affairs to not be as liable to pay as much tax as they should. For example: claiming you have earned less and made less profits that you actually have.

Whereas Tax Avoidance is when a tax payer fully utilises / exploits the tax system to his/her advantage to avoid paying as much as they normally would. Unlike tax evasion this is legal. For example: using tax deductions, establishing an offshore company in a tax haven or even changing one's business structure through incorporation.