The Paradise Papers: Some conclusions
It appears that after three Panorama episodes and vast amounts of media coverage the story of the leaked Paradise Papers has little further to offer. As such, this seems a good time to step back and see what can be learned.
This article has been written as a response both to the revelations themselves and reactions to them.
The latter have included outrage in many quarters. For example, the journalists involved and Meg Hillier, the current chair of the House of Commons Public Accounts Committee, not to mention her (much maligned in these pages) predecessor Margaret Hodge.
At the other end of the scale, equally outraged accountants and professional advisers have been eager to assert their views that all of the arrangements highlighted must have been in compliance with legislation in every relevant country and therefore this is a storm in a non-existent teacup.
It is fair to say that if individuals and companies have been working within the legislation, utilising loopholes offered to them, then their behaviour and actions should not be questioned from that perspective. The question of morality is another matter and always causes controversy and it seems unlikely that anyone on either side of that fiery debate will back down.
One point that may begin to become more relevant is reputational risk. The likes of Starbucks may well not have welcomed all of the attention and picketing that resulted from their efforts to avoid UK taxation. Similarly, Lewis Hamilton, Dermot Desmond who has the largest stake in Celtic and Apple may not welcome or wish to have repeated the kind of publicity that they have received over the last three days.
Where I wish to focus in this article is on two other aspects:
The answer which is consistently given whenever investigations of this type take place runs along the lines that “everything that we are doing is within the law and we have fully complied with all of its requirements”.
This applies equally to Apple and individuals such as the TV stars and sports personalities highlighted as a result of these leaks, not to mention the various high-profile media investigations over the last five years.
Every recent chancellor of the exchequer has declared his intention to clamp down on what they regard as abusive tax avoidance. However, to date, their efforts have been limited although not entirely negligible.
The courts have also done their bit in situations where advisers have gone over the top and implemented schemes that were deemed to be in breach of legislation.
Since it is apparent that literally millions of people in this country object to the loss to the exchequer of funds as a result of what are often highly artificial arrangements, surely it is time for the government of the United Kingdom to take the necessary steps to draft clear and comprehensive legislation in a number of areas with direct intention of cutting out some of the many perceived abuses.
It is impossible to tell exactly what has and hasn’t happened from newspaper articles and brief coverage as part of often shallow TV investigations that are designed to entertain rather than fully inform.
However, it seems highly likely from the data provided by Panorama, including partially redacted copies of legally binding documents, that the tax authorities in a number of countries could have a field day with this information.
As so often with the cleverest tax planning arrangements, the theory almost certainly works but the requirements are so complex that those attempting to implement the plans frequently fail to do so correctly.
The result is that what should have been a tax avoidance scheme becomes merely a failure to pay tax correctly in accordance with the law.
This might be the most fruitful field for HMRC to pursue over coming months and given the parlous state of the economy at the moment, Philip Hammond might very much welcome the additional revenues that result.