Over the past decade the main vehicle for reforms of tax systems in the world were the changes in economy and relative assessment of efficiency and fairness. Corporate income tax falls in the group of direct taxes. The main research aim here is to identify the causes and effects which lead to tax evasion as well as the different ways and modes of corporate income tax evasion. Moreover, a number of research projects have been conducted pointing at tax evasion, which is manifested as a special form of diminished capitalization. For the analysis of this extremely widespread problem nowadays, we used publications and other papers available either as printed materials or in electronic form. Qualitative and descriptive analysis methods were used in this study. Estimates show that underground economy the European Union countries ranges between 10% and 15% of total GDP. However, informal economy is much more present in Eastern European countries and countries in transition such as Serbia - where the share of the underground economy is estimated at about 30% of the GDP. Significant presence of informal economy aggravates the efficient allocation of resources and slows down economic growth, because companies inclined to tax evasion present unfair competition to companies which operate legally. Non-observance and non-compliance with tax regulations by tax payers is a clear signal that the conceptualized tax system deviates from economic reality. The process of detecting non-compliance with tax regulations affects the taxpayers' attitudes toward paying taxes in two ways. Firstly, it represents the probability that sanctions will be applied to tax offenders, and secondly, it increases trust in the tax system and its acceptance.