The Paradise Papers and tax evasion
While politicians don’t always get the point, as everybody in the business knows, there is a significant distinction between tax avoidance and tax evasion.
The second Panorama programme, broadcast last night, should act as a wake-up call for those accountants and tax advisers who scoffed at the initial announcement suggesting that there was no evidence of tax evasion.
Before going into detail, it is worth looking at some of the “legal” arrangements that were explored.
A large number of executive aircraft owners, including Lewis Hamilton who should be riding high at the moment having just won his fourth World Championship, have allegedly been “avoiding” VAT using what appeared to be totally artificial arrangements involving the Isle of Man.
Bearing in mind recent court decisions regarding other structures that are created entirely for tax-saving reasons and no other, a challenge by HMRC and/or its European peers could be interesting and quite possibly successful.
The issue here may be that the Isle of Man authorities appear to have sanctioned tax repayments based on what appears to be a failure to understand basic tax law.
Apple has proved itself to be highly professional in its efforts to minimise corporate tax liabilities across the globe. Even in that context, the care that it has taken as shown by rigorous due diligence prior to relocating most of its affairs from Ireland to the Isle of Man will hearten shareholders who would expect nothing less.
To this point, the scoffers may still be saying “what is the problem?” In the past, that view might well have prevailed.
Bearing in mind the fact that most readers will be bound by strict ethical guidelines, there may be a question about whether some of the activities highlighted in the first two episodes of this long-running drama could represent breaches of professional responsibility.
More significantly, those of us with professional qualifications are bound by the regulations relating to Professional Conduct in Relation to axation (PCRT). While the latest iteration only took effect on 1 March this year, previous versions have applied since November 1995. To quote from the one on the CTA website,
The PCRT itself is based on the five fundamental ethical principles that all tax advisers are expected to follow – namely integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. It reinforces in a tax context existing overarching guidance and standards expected.
The latest standard for tax planning might give pause for thought as well.
Members must not create, encourage or promote tax planning arrangements or structures that i) set out to achieve results that are contrary to the clear intention of parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.
At this point, many readers will still be wondering what all the fuss is about even though they may recognise that in many cases the rich are paying tax at lower rates than the poor, an offence in the eyes of politicians and most members of the public but not an activity that is illegal.
The programme highlighted the activities of self-proclaimed “tax alchemist” James O’Toole, a lawyer whose speciality lies in using offshore arrangements to help clients minimise liabilities. As described on a TV programme that attempted to turn its presenter into a kind of James Bond figure, music and all, they sound at best dubious and while it was unclear as to whether some might have been illegal, there is a strong possibility that they were. Going further, at the very least, it would be hard to suggest that they complied with the PCRT standards referred to above.
In particular, although we are clearly not privy to all of the details, the arrangements that were highlighted in connection with three individuals working on the BBC TV programme Mrs Brown’s Boys appear to be in direct contravention of the disguised remuneration legislation introduced with effect from 6 April 2011. Basically, they siphoned “pay” from the BBC to a company in Mauritius then loaned it back to themselves. It goes without saying that the UK tax authorities were not privy to or beneficiaries of the arrangement.
It seems unlikely those involved had any proper understanding of the possibility that they might be in breach of UK tax legislation but their advisers will have understood the position. In any event, ignorance is no defence against the law and surely HMRC must take action to recover tax in this case and any others highlighted. The department could also seek to take legal action against those advisers, if they have facilitated tax fraud.
The sad thing is that many readers may be feeling that, like the writer of this article, the latest stories are slightly tiresome, given the fact that they are little more than a repetition of The Times exposures five years ago and Mossack Fonseca revelations last year.
The point here is that the UK tax authorities seem happy to let those abusing the system, in some cases illegally, continue to do so.