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former Prime Minister Tony Blair
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Pandora Papers uncover secret dealings of the super rich

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The International Consortium of Investigative Journalists has released another batch of papers exposing money laundering, tax evasion and other nefarious activities by the rich and powerful.

5th Oct 2021
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Most readers will recall revelations a few years back under the slinky titles of The Panama Papers and The Paradise Papers. These caused severe embarrassment to a number of powerful individuals and, more relevantly for our purposes, some accountants. They might even have generated productive activity at HMRC and its peers overseas, though that is less clear.

The International Consortium of Investigative Journalists has now received a leak of close to 12m files of financial documents, which expose allegations of more dirty deeds by the rich and the powerful. In the UK, the Consortium has shared its goodies with the BBC and the Guardian, both of whom are making hay.

The BBC restricted its coverage to two half-hour Panorama broadcasts, both of which are available on catch up for the next year.

Even if you have no great interest in the topic, it is worth having a quick look to get a better understanding of money laundering and tax avoidance techniques used by the ultra-wealthy.

What is in the Pandora Papers?

Even though this time around accountants seem to be less prevalent in the coverage, it is inevitable that some of our cohorts will have been involved in facilitating many of the transactions under consideration, along with lawyers and other upstanding professionals.

Once again, hidden assets lie at the heart of this story, especially those of wealthy politicians and their “cronies” from the Middle East, Eastern Europe and even our own Sceptred Isle.

Many might wonder whether there is any real political will to attack and close down the shell companies involved and restrict the use of tax havens. As last month’s tax gap column observed, these loopholes cost a significant proportion of the taxes we pay each year.

The other area picked up by UK media is the alleged connection between donors to political parties and corruption. Indeed, a journalist observed that “the gravest threat at the moment is the purchase of our political system by the super rich”. Pretty heady stuff.

The Conservatives were at the centre of this aspect of the BBC investigation, which might explain an unkind and somewhat farcical attack on the Corporation on the same day by our brand-new minister for culture? It will not have come as good news to those currently swanning around her party’s conference in Manchester to discover that a high-profile donor to its cause “has been involved in one of the biggest corruption scandals that we have seen in Sweden in modern times”.

A few accountants might be getting hot under the collar too but for the most part though, we can sit back and enjoy the ruckus comfortable in the knowledge that it does not impact our own businesses or those of our clients.

Blairs avoid stamp duty

It wasn’t just the Conservatives that were in the spotlight. Margaret Hodge was highly critical of an arrangement she accepted was wholly legal but where the morality was questionable. This involved her former party leader Tony Blair and his wife, who purchased a London property for close to £6.5m. The vendor had placed the building in a company and, as a result, no stamp duty was due, costing the Exchequer over £300,000.

Very few readers will doubt the veracity of the claims by the Blairs that they did nothing wrong but there has to be a solution to this ridiculous anomaly.

One option would be for HMRC to set up its equivalent to an honesty box, asking all those who unintentionally avoid taxes and feel guilty about it to make donations.

While many of us might be happy to hand over 50p for a cup of tea at the local church fête, anyone who feels bad about paying stamp duty on a major property transaction might feel even worse about parting with a six or seven figure sum to replenish the country’s coffers.

There is a much simpler solution. That is to change the law in order to ensure that stamp duty applies to far more of these transactions. Someone is bound to point out that there are technical difficulties but few can doubt that had this taken place, we as a nation would be considerably richer.

Instead, it seems far more likely that the storm will remain firmly within its teacup and the very rich as well as criminal types can sit back in their luxurious homes, comfortable in the knowledge that nobody will rock the yacht again until the International Consortium of Investigative Journalists decides to release another batch of paperwork in a few years’ time.

Replies (15)

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By Justin Bryant
05th Oct 2021 14:51

Why is this a ridiculous anomaly? If you own any UK property in a company you are potentially exposed to a double (sometimes multiple) layer of CGT. Why isn't that a ridiculous anomaly? Ignoring that, it only looks ridiculous if you believe the BBC's biased and ill-informed reporting, as they are comparing apples with pears and in practice the sale of SPV property companies is uncommon if the underlying property is worth less than £10m*, as it's usually too risky and messy to acquire the company's history. Also, for commercial property, you'd be a fool not to use an offshore SPV re IHT (assuming non-UK dom investors). There's also ATED for residential properties as the price for enveloping them etc.

*Ultra rich people on average tend to buy >£10m properties, so there is no news here per se, as it would be remiss for an adviser not to at least mention the SPV option if it's available re IHT etc.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
05th Oct 2021 15:20

Agreed. Biased reporting at its worst.

One point that I would make is that if the sale of SPV property companies involving <£10m properties is uncommon then that does lead to the question as to why it was done in this case.

But unless the Blairs were instrumental in dictating arrangements to the vendor, I note that it was the vendor (who else could do it?) that put the property into the company.

I'm also intrigued by the fact that although SDLT may have been avoided no Stamp Duty was paid? (They do of course mean SDLT when lazily referring to SD, but surely they did pay some SD?)

And as you say, the 'anomaly' has been dealt with in part at least by the ATED regime.

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Replying to Wilson Philips:
Psycho
By Wilson Philips
05th Oct 2021 16:48

And without wanting to get involved in discussions about fiscal policy:

I buy a commerical property for £1m and pay £x SDLT for the privilege. A year later I sell the property for £1m and the buyer pays a further £x in SDLT. Why is that not an anomaly? Taxes are generally levied on profits and gains. In this case, no-one has made any money yet the Exchequer gets to eat their cake twice.

It is, of course, an easy way to raise funds for the coffers and I understand of course that it was never designed to be a tax on gains but a tax on transactions. Nevertheless, it strikes me as being no less anomalous than the issue referred to above.

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Replying to Justin Bryant:
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By Justin Bryant
05th Oct 2021 18:44

I note para 309(55) here confirms this point re IHT and ToAA motive defence at least: https://assets.publishing.service.gov.uk/media/615b196c8fa8f52979b6c8fd/...

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By Winnie Wiggleroom
06th Oct 2021 09:25

So one politician is questioning the morals of another politician....thats unusual

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Replying to Winnie Wiggleroom:
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By Rgab1947
07th Oct 2021 09:51

I like this.

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By Arcadia
06th Oct 2021 10:36

Minimising your taxes legally is completely rational and moral and supported by case law. No-one has the obligation to make some kind of morality payment for feeling guilty about depriving the public purse. When will people realise that if the government needs cash it prints it. It has nothing to do with taxation.

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By Arcadia
06th Oct 2021 10:39

On corruption in political parties, it is simple; political parties should be funded by the state, and not allowed to take donations from unions, or companies or anyone. This was recommended years ago but Cameron funked it, like he funked boundary change.

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By Ian McTernan CTA
06th Oct 2021 11:22

Awful biased BBC reporting at it's worst.

Everything these days is a 'crisis'.

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By Hugo Fair
06th Oct 2021 12:15

On a less salubrious note, am I the only person to think that the photo of A. Blair increasingly looks like the main component of a pirate flag?

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Replying to Hugo Fair:
paddle steamer
By DJKL
06th Oct 2021 13:43

I am more remined of the Last Crusade ageing process, he did not "choose wisely"

https://www.youtube.com/watch?v=VA7J0KkanzM

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By Rgab1947
07th Oct 2021 09:50

So the newspapers and some news channels froth at the mouth calling it (illegal) tax evasion when its (legal) normal tax avoidance. I cannot recall which judge who said there is no reason why you should allow the taxman to take a shovel to your money (probably got the wording wrong).

However it does show that despite the wishful thinking of the left its not the rich who will pay the tax (and level the country up using the latest buzzword) but us poor middle income sods and worse the very poor. Lets hike up the NI a bit more.

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Replying to Rgab1947:
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By AndyC555
07th Oct 2021 15:37

“No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.” Lord Clyde

Ayrshire Pullman Motor Services and Ritchie v. IRC (1929) 14 TC 754

or from the USA

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

The wonderfully named Judge Learned Hand

Commissioner v. Newman, (1947)

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By AndyC555
07th Oct 2021 16:05

"Pandora Papers uncover secret dealings of the super rich"

Given the virtue-signalling moralistic caterwauling about this is it any wonder wealthy people keep their personal affairs secret?

What should they be expected to do? Take out a full page advert in The Times every time they buy or sell anything or invest in anything?

Unless they are keeping their dealings a secret from the taxman (and there is precious little evidence that they have done) what's the problem?

All the Pandora Papers have done is give some people a platform to make snide innuendoes and chuck vague accusations at people.

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By Agutter Accounts
18th Oct 2021 19:57

Yes. Once more we have a thorough piece of investigative journalism. And it is confirming some things we already knew or suspected. My nephew who is a tax accountant left his last job in London partly because of ethical considerations in what his firm was doing. Clue: some of the top executives were "investment bankers".

All this makes a mockery of the requirement by us as accountants to check out clients to make sure they are money launderers. I ask my clients to their face "are you a money launderer" and we have a good laugh because none of us has enough money to launder.

Things will not change because elections and therefore politicians are bought and sold by powerful monied interests and he who pays the piper calls the tune. It is as true here in Blighty - in many ways the money laundering capital of Europe - as more tradional centres of corruption.

I have a saying often quoted to clients - "render unto Caesar that which is Caesar's but don't render too much". I have no objection to paying taxes, but what I do object to is rich parasites who could well pay their dues but squirm out of it by abusing the rules.

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