'Panama Papers' storm hits home

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The largest data leak in history has lifted the lid on the shady offshore tax dealings by numerous powerful individuals. So, what happens now?

Panama City-based law firm Mossack Fonseca is the fourth largest provider of offshore tax services in the world. A year ago, a whistleblower contacted the German newspaper Süddeutsche Zeitung and unleashed a flood of confidential documents. Over the weekend, the paper released all 2.6TB [Terabytes] of information, dating all the way back to the 1970s.

Mossack Fonseca has already returned fire, stating: “We are not involved in managing our clients’ companies. Excluding the professional fees we earn, we do not take possession or custody of clients’ money, or have anything to do with any of the direct financial aspects related to operating their businesses.”

The Panamanian firm may have pleaded its innocence, but the people named in the so-called “Panama papers” will have a lot more explaining to do. The data extends into the close orbit of influential politicians including Vladimir Putin, the prime minister of Iceland and David Cameron, who’s deceased father Ian Cameron was one of the firm’s clients. All-in-all, 72 heads of state are implicated the leak’s 11m documents.

The Süddeutsche Zeitung wrote: “Among others, Mossack Fonseca’s clients include criminals and members of various Mafia groups. The documents also expose bribery scandals and corrupt heads of state and government.

“The alleged offshore companies of 12 current and former heads of state make up one of the most spectacular parts of the leak, as do the links to other leaders, and to their families, closest advisors, and friends. The Panamanian law firm also counts almost 200 other politicians from around the globe among its clients, including a number of ministers.”

HMRC headache

The leaks present a massive headache for HMRC and tax advisers, with more than 1,800 British intermediaries named. From a sheer logistical point of the view, the overworked tax department will have to dig through the millions of pages. HMRC confirmed it has “already received a great deal of information on offshore companies, including in Panama, from a wide range of sources, which is currently the subject of intensive investigation”.

Rebecca Busfield, senior partner at Watt Busfield tax investigations, told AccountingWEB that HMRC will need to check “the quality of the data” and warned there may be issues resourcing the necessary investigations.

“Given the PAC’s and general public’s criticism of HMRC’s handling of the HSBC Swiss client leak, and the creation of the Liechtenstein Disclosure Facility (LDF), HMRC will be keen to be seen to be taking a tougher stance,” said Busfield.

“HMRC would probably like to get some high profile criminal prosecutions. Also George Osborne may try and get some favourable publicity given recent attacks in the press that he favours his wealthy supporters.”

According to Busfield, a new offshore disclosure facility will start in 2016. It will carry a larger penalty than the LDF and will not include immunity from prosecution and a larger penalty than the LDF.

“There is also a proposal to introduce a statutory requirement for taxpayers to come forward and correct their overseas tax affairs between April 2017 and September 2018, after which there will be very tough action by HMRC,” said Busfield.

“It is unlikely they will set up a Panamanian amnesty given the criticism of the UK/Swiss deal and Liechtenstein Disclosure Facility, although that may be helpful to get better quality information from the Panamanian intermediaries.”

Red alert for advisers

According to Dawn Register, a partner in tax dispute resolution at BDO, the pressure will intensify on advisers as HMRC is forced to clamp down. “The powers and increase in penalties for offshore evasion are already in the Budget. It will be introduced in the coming years. All the disclosure programmes have ended. There are no more amnesty programmes. We’re entering an era of very tough treatment by the Revenue. The pressure on advisers is huge.

“If you’re giving advice to someone who has complicated international tax affairs, you need to know what you’re talking about. The rules are so complicated. If they’re non-domiciles, if they’ve got offshore trusts, offshore companies - you need to be an expert in that area. To dabble, especially now, is now very, very dangerous,” said Register.

“If you know someone’s got a problem, you need to act very swiftly and make sure you’re either helping them to rectify their position or putting them in touch with someone who can.”

HMRC has been granted new powers to tackle evasion, including rules for accountants and advisers deemed to be “offshore enablers”. Under new powers, advisers who have even known about offshore evasion will have committed an offence.

Busfield agrees with Register’s diagnosis: “Any UK taxpayers who are associated with a Panamanian bank account should double check whether they have UK tax liabilities, and if necessary make a disclosure to HMRC. Depending on the size of the potential tax evasion, taxpayers should consider using the Contractual Disclosure Facility to try and get immunity from prosecution.”

Despite the size of this leak, Register wasn’t surprised by its occurrence.  “No, this is the way of the world now. Electronic data, hacking - it’s more of the same. The world is a smaller place and there’s less secrecy. There’s a huge political agenda to push for transparency. Tackling tax dodgers is a very popular political agenda.”

Why Panama?

The answer is that Panama, alongside Bahrain, Nauru and Vanuatu, has vigorously resisted the OECD’s common reporting standards. As the veil of secrecy around traditional strongholds like Switzerland has lifted in recent years, Panama offered a discreet option.

Jolyon Maugham QC explained on his blog Waiting for tax, “What Panama has offered – its USPs in the competitive world of tax havenry – is an especially strict form of secrecy, a type of opacity of ownership, and (if the reports of backdating are correct) a class of wealth management profession some of whom have especially compromised ethics.

“You go to Panama, in short, because, despite its profound disadvantages, you value these things.”

Speaking to AccountingWEB, Maugham expanded on Panama’s appeal: “The Panamanian tax authority isn’t terribly interested in delivering transparency to other revenue authorities. You’ve got dodgy bearer shares that are unusual and possibly particular to Panama, you’ve got a tax and wealth management industry that, in some cases, seems a little light on ethical standards - those are all powerful attractors if you’re engaging in evasion.”

Maugham welcomed the leak, saying: “It’s all very well for those in the know to say ‘Oh this is happening,’ but the reality is that until people see up and close, they are inclined to believe that those who say this is happening are exaggerating.

“The way you get reluctant governments to reform is by raising the political cost of inaction. If they feel the public is angry, they’ll react. You’d rather want a world where government did things merely because it’s the right thing to do, but if we can’t have that world, I’ll settle for one where government acts because it appreciates there is a very serious political cost to its inaction.”

A 30-minute Panorama documentary summarising some of Mossack Foneseca's actvities on behalf of UK clients, including the Prime Minister's father, can be viewed on the BBC iPlayer.

About Francois Badenhorst

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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04th Apr 2016 16:06

Dodgy bearer shares

As for these being dodgy and/or unusual, they were until very recently available for UK companies and bearer shares were approved as OK by CoA. See: “The Court of Appeal agreed that the judge should not have suggested there was anything sinister in the drafting of the documents or the existence of bearer shares,..” http://www.mondaq.com/article.asp?articleid=7765

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04th Apr 2016 16:21

Wow - this makes HSBC look paltry!

The news is linking the law firm to money laundering of the Brink's Mat robbery, and David Camerons late father set up an investment company (called Blairmore) with this law firm.

Quote from the News:

"It was David Cameron's government that banned bearer shares in the UK in 2015. The Prime Minister has also called for an international crackdown on aggressive tax avoidance and evasion.

However, an investment prospectus published by Blairmore in 2006 states that it will seek to ensure its profits remain beyond the reach of HMRC."

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By Anonymous
04th Apr 2016 16:27

Moderated comment

[A comment was posted asking if Tony Blair was involved, which had to be removed. Please be very circumspect when suggesting that anyone might be involved in wrongdoing. It's against AccountingWEB's rules - and those of the UK courts. Ed.]

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04th Apr 2016 16:45

There are a lot of very nervous people right now

I've already heard rumblings about Tony Blair. Be interesting to see what manifests. Ostensibly, Suddeutsche Zeitung have a month's worth of reports lined up. 

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04th Apr 2016 18:04

The GoodEnglish Professor speaks......

....in the United Kingdom it's PROGRAMME.

It's the United States - and the software progs everywhere,- where it's PROGRAM.

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04th Apr 2016 18:43

Tip of the hat

Thanks for the heads up. I see my esteemed editor has already fixed it!

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04th Apr 2016 18:22

Thanks for pointing out the erroneous Americanisation

Sorry - Francois is multi-lingual and occasionally misplaces his vocabulary. The text has been corrected. Please don't let this detract from the rest of the article.

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By hedglen
04th Apr 2016 20:25

What next for the UK advisors of those 'affected'?

I was wondering what steps UK accountants should take if they discover one of their clients is named amongst the .Panama Papers'  I suspect it would come as a surprise, unless they are already fully aware and there is nothing to hide because it has been fully disclosed in the UK.

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04th Apr 2016 20:56

It's very tricky

As Dawn Register points out, very often these dealings are concealed from wives, husbands and friends, let alone accountants and advisers. I suspect at the moment the best recourse is if you have suspicions, is simply to ask. There's obviously a class of people more likely to be involved in structures such as these: Non-doms, high net worth individuals etc. 

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By mumpin
04th Apr 2016 21:19

Dawn Register!

Nominative determinism or what?

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05th Apr 2016 09:14

I didn't even notice!

mumpin wrote:

Nominative determinism or what?

Haha nothing we love more at AccountingWEB than a bit of compulsion of the name!

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04th Apr 2016 22:24

A vast difference

From the coverage so far there seems to be the usual failure by the media to distinguish better what is actually illegal, and what is perhaps immoral but not illegal. 

 

 

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05th Apr 2016 09:52

Allegations only

T Jarvis wrote:
From the coverage so far there seems to be the usual failure by the media to distinguish better what is actually illegal, and what is perhaps immoral but not illegal.
Just to be sure I understand you. Do you mean allegations of wrong-doing are not the same as illegal activity taking place?
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05th Apr 2016 13:09

Do I assume English is not your first language?

stepurhan wrote:

T Jarvis wrote:
From the coverage so far there seems to be the usual failure by the media to distinguish better what is actually illegal, and what is perhaps immoral but not illegal.
Just to be sure I understand you. Do you mean allegations of wrong-doing are not the same as illegal activity taking place?

 

My comment was perfectly clear, I am addressing the difference between allegations of criminal activities, and allegations of activities which might be viewed as immoral but which are NOT illegal. 

 

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05th Apr 2016 14:22

Clear English

T Jarvis wrote:
stepurhan wrote:
T Jarvis wrote:
From the coverage so far there seems to be the usual failure by the media to distinguish better what is actually illegal, and what is perhaps immoral but not illegal.
Just to be sure I understand you. Do you mean allegations of wrong-doing are not the same as illegal activity taking place?
My comment was perfectly clear, I am addressing the difference between allegations of criminal activities, and allegations of activities which might be viewed as immoral but which are NOT illegal.
English is actually my first language, but clear comprehension of another's words still requires one to understand the definitions the other person is using.

The reason for my enquiry is simply that, in another thread, you appear to be stating that you consider alleged illegal activity that didn't go to court to be actual illegal activity that just hadn't been proven. That seems at odds with your attitude here that those the papers are alleging have engaged in illegal activity may actually have kept within the law after all. Perhaps you could clarify this apparent discrepancy.

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05th Apr 2016 08:14

there is certainly no need to apologise

For spelling program as you wish this is the sort of pedantry I try to avoid ;-)

 

http://www.theguardian.com/education/2014/oct/28/-sp-spelling-language-l...

 

http://www.thetimes.co.uk/tto/news/article4725015.ece

 

 

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04th Apr 2016 23:40

I have a dream....

....that this will lead to HMRC putting its efforts into this large-scale activity and therefore they'll stop persecuting small businesses on technicalities and honest errors.

I have a dream.  But I'll wake up soon.

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06th Apr 2016 11:30

Dream on

wilcoskip wrote:

....that this will lead to HMRC putting its efforts into this large-scale activity and therefore they'll stop persecuting small businesses on technicalities and honest errors.

I have a dream.  But I'll wake up soon.

 

Dream on, HMRC's strategy :-

 Strong on the weak, weak on the strong.

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By Tromdo
06th Apr 2016 11:43

Dream on!

The resources don't exist to do this.  Perhaps some phone calls to former employees.  Or even, heaven forfend, seeking assistance from outside?

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05th Apr 2016 09:12

Cognitive Dissonance:

Core problem is, all the powers that be, suffer a conditioned perspective: they fool themselves into believing everywhere in this spavined World is identical to their own. And can therefore impose aligned tax laws and legal systems.

Step back, cast the moral indigence aside for a bit and consider...

Due Diligence: nice idea. Assad's cousin* swans into a lawyer/accountant/bank's office somewhere nice and secretive and expresses his desire to squirrel away a nice few billion $s.

Lawyer picks up the 'phone and calls Syria.

Or say Zimbabwe; or Nigeria; et al.

* "Documents show Mossack Fonseca’s links to Rami Makhlouf, a cousin of the Syrian president, who was described in US diplomatic cables as the country’s “poster boy for corruption”.

http://www.theguardian.com/news/2016/apr/05/mossack-fonseca-panama-paper...

 

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05th Apr 2016 10:44

Come on guys .....

... give the chaps at HMRC a break, they are busy chasing waiters to tax their tips and creating campaigns that effectively draw suspicion on anybody who accepts payment in cash.

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05th Apr 2016 11:12

Did anyone watch Panorama last night?

You can see it here.

I have to say, I found it quite interesting. Panorama can sometimes be a little sensationalist, but I felt they tackled the issues quite conclusively. The case studies presented are troublesome, in particular Mossack Fonseca's use of fake beneficial owners. It will probably only become clear in the coming weeks to what extent the Panamanian law firm subverted the UK's AML efforts and regulations. 

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05th Apr 2016 11:16

tax havens

it was Somerset Maughan who described Monaco as ' a sunny place for shady people'. The Times has gone one better today in an article headed 'Panama specialises in wash and dry services' , The article starts 'if tax havens are sunny places for shady people, Panama is one of the sunniest and shadiest of them all.....'

 

that says it all really 

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05th Apr 2016 11:25

Decent article and turnaround time. Well done, Francois.

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05th Apr 2016 12:08

Justice

If there was any justice in the world, I would love it if Cameron and Putin and whoever else has salted off funds there to turn up to get it and be told "what money" I know nothing about it. Its not like they would kick up a stink about it.

If most of the money is related to crime, drugs mafia etc the CIA, Interpol Mi5 should seize the lot, and see who comes forward to complain about it.

 

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05th Apr 2016 12:23

Putin

Glennzy wrote:

If there was any justice in the world, I would love it if Cameron and Putin and whoever else has salted off funds there to turn up to get it and be told "what money" I know nothing about it. Its not like they would kick up a stink about it.

If most of the money is related to crime, drugs mafia etc the CIA, Interpol Mi5 should seize the lot, and see who comes forward to complain about it.

 

 

There is no allegation of Putin hiding money. It is a friend that has been doing it.

Associating Putin to this is just part of the anti-Russia agenda by our media. 

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05th Apr 2016 12:34

Maybe, maybe not ....

cheekychappy wrote:

There is no allegation of Putin hiding money. It is a friend that has been doing it.

Associating Putin to this is just part of the anti-Russia agenda by our media. 

According to Panorama (thanks for the link Francois) his friend, the Cello player, received assets worth millions in exchange for one dollar! It's good odds that it is money laundering ... but by who? It could be Putin, it could be someone else, but he is a VERY close friend of Putin.

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05th Apr 2016 12:38

I agree and disagree (if that makes any sense)

cheekychappy wrote:

Glennzy wrote:

If there was any justice in the world, I would love it if Cameron and Putin and whoever else has salted off funds there to turn up to get it and be told "what money" I know nothing about it. Its not like they would kick up a stink about it.

If most of the money is related to crime, drugs mafia etc the CIA, Interpol Mi5 should seize the lot, and see who comes forward to complain about it.

 

 

There is no allegation of Putin hiding money. It is a friend that has been doing it.

Associating Putin to this is just part of the anti-Russia agenda by our media. 

I dunno, Cheeky. I certainly agree that one can't just proclaim guilt. But it seems dubious that a very close confidante of Putin, a cellist and music school owner, would be knee deep in shady offshore deals worth $2bn by his own accord. I think its a question worth asking. If it's not Putin, he would have been acting on behalf of another influential person within the Russian state. 

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to cheekychappy
05th May 2016 05:01

Yeah Right!

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to cheekychappy
05th May 2016 05:01

Yeah Right!

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to cheekychappy
05th May 2016 05:01

Yeah Right!

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05th Apr 2016 13:19

Look in the right places

Glennzy wrote:

If there was any justice in the world, I would love it if Cameron and Putin and whoever else has salted off funds there to turn up to get it and be told "what money" I know nothing about it. Its not like they would kick up a stink about it.

 

There is no allegation that David Cameron is in any way linked to this company or the allegations. Mr Cameron is not responsible for his father's actions any more than anyone is responsible for the actions of their ancestors. I do believe that it would be interesting to take a close look at an ex Labour PM and a certain "independent" MP who had very cosy relationships with Gaddafi.  

 

The sanctimonious pronouncements by Corbyn really are a bit rich from someone in the pocket of the Unions.

 

 

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05th Apr 2016 12:21

Will this be a game changer for HMRC?

If Mossack  Fonseca are the fourth largest provider of off shore tax services in the world then who are the other three and when can we expect similar revelations about their clients? It is hoped that there is a deep throat in each of these other Companies ready to blow the whistle on any wrong doing although in HMRC`s response yesterday Jenny Grainger seems to be indicating that  they have more than enough on their collective plate and don`t have the resource to enquire into what looks like an avalanche of information heading their way. She does however give every indication that HMRC are  more than pleased with their results so far on the compliance front, do I detect a whiff of hubris in the press release? Given the size of these recent revelations it should be dawning on HMRC that they are only just scratching the surface. Time for a root and branch rethink on its mandate and  use of resource or are HMRC happy to carry on with a 20th century  strategy to address a 21st century problem? 

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05th Apr 2016 12:52

@Shirley / Francois
Your both possibly correct. But it is only speculative.

I was just highlighting that the media associating Putin fits in with their anti-Russian agenda.

If his friend is Putin, then I’m sure his other friends are rich and powerful Russians.

Time will tell, and it wouldn’t surprise me if Putin has his hands in this.

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05th Apr 2016 12:53

@Francois

Are you sure its a Cello he plays and not a fiddle.

 

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05th Apr 2016 16:18

Isn't a cello just a bigger fiddle?

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05th Apr 2016 13:16

Just an opinion

Having an offshore company isn't illegal, however, concealing the ownership of the company indicates there is (was) something dodgy going on.

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06th Apr 2016 13:30

If it looks like a duck, and it quacks...

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By mabzden
05th Apr 2016 13:24

I'm going to go home ...

... and learn to play the cello. It seems a very lucrative profession.

I've been playing the guitar for a few years and don't have one single dodgy offshore company to show for it. Wrong choice of instrument...

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05th Apr 2016 15:26

Can we tone it down, please?

There's no need to cast impolite suggests at each other about language skills. We had enough of that earlier on.

We've already had to moderate this thread once and we don't want to have to do it again. There is no need for linguistic nicety. Any allegations of illegal activity are ultimately decided by the courts, so if you want to debate where the line is drawn between avoidance and evasion, you will have to do it purely hypotethically.

We've had enough comments about Putin, Cameron and other politicians. Granted they are probably unlikely to sue us, but please don't go any further down that path. To suggest someone has been doing something illegal without being able to prove it is libellous, and AccountingWEB will take down any such comments without notice.

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05th Apr 2016 23:28

Oh John
And they say I'm sensitive, be more robust

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By MJShone
06th Apr 2016 09:53

This leak (and HSBC etc before) prove a point

If I'm ever asked "but how would the Revenue ever find out?" I reply that one never knows - ex-spouse (even if currently happily married!), disgruntled employee, nosy neighbor, records to which the Revenue has access such as the Land Registry, massive leaks like his one. And a currently secretive jurisdiction might change the way in which it acts and agree to provide information to other jurisdictions.

"...be sure your sin will find you out..." (Not often I get to quote from the King James Bible!)

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06th Apr 2016 10:33

am i alone?

Where I hope the leak can catch criminals, most of the panorama suggested avoidance of tax which I believe is not illegal, The press constant reverse snobbery about rich people wanting to keep their money is tedious.

If I earned £100million, is it really fair that a government would want £40 - £50 million of this?

I believe the top 10% of earners pay 90% of the tax in the uk, so this fairy story about them not paying there way is nonsense.

Concentrate on criminals and not people who simply want to keep THEIR money 

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06th Apr 2016 10:45

Hmmmmm....

why always me wrote:
If I earned £100million, is it really fair that a government would want £40 - £50 million of this?

So you're advocating a lower rate of tax for multi-millionaires?

I think what the average Joe finds galling, and what this all demonstrates, is that the more millions you have the more paying tax becomes something that is voluntary (depending on the quality of your lawyers/accountants) rather than compulsory.

 

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06th Apr 2016 10:52

yes!

Let's encourage people who make money to make more, they employee people and keep the world going.

Again, seems like doing something legal is a problem. I you pay £2k in tax and someone could legally reduce that to £100, who would not want to do that.

Concentrate on ILLEGAL activity

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By lme
07th Apr 2016 04:48

I would not want to

why always me wrote:

Let's encourage people who make money to make more, they employee people and keep the world going.

Again, seems like doing something legal is a problem. I you pay £2k in tax and someone could legally reduce that to £100, who would not want to do that.

Concentrate on ILLEGAL activity

If there is a conflict between my moral compass and the law I do not just default to the cheapest possible option. I see this approach as both an overhead and an advantage of being a professional, and as a professional responsibility. There is a good reason for having a code of professional ethics. It helps keep professions sustainable when the law goes wrong.

Furthermore, I make this clear to my clients who value the advice I give on this basis. Others go elsewhere leaving my client base lower risk than some othe advisers', which should Offer my clients some benefit if HMRC ever get their act together and take a risk based approach. Of course, it's horses for courses.

I hope this helps.

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07th Apr 2016 10:41

That's funny :)

J.Griffiths]</p> <p>[quote=lme wrote:
why always me wrote:

If there is a conflict between my moral compass and the law I do not just default to the cheapest possible option.

 

Making professional decisions on moral grounds is a slippery slope.

Does a vegetarian accountant refuse to act for meat eating clients?, Does a devout Christian accountant refuse to act for non-Christian clients? Does an environmentally active accountant refuse to act for 4x4 driving clients?  How about a non smoking accountant, does he act for chain smoking clients?  I know a very successful business owner who employs over 200 staff and produces a great product - but he has a swastika tattoo'd on the back of his hand - would your "moral compass" allow you to act for him? 

So far I have seen no evidence that anyone involved with the Panama scheme actually broke the law. If it was legal then what is all the fuss about?  It seems to me that what we are seeing is low quality politicians like Corbyn attempting a smear campaign based on innuendo.  I find this particularly obnoxious from a man like Corbyn who is bought and paid for by trade unions, and whose own moral standards are obviously extremely low given the number of affairs he has apparently had. 

You start by saying people should not make moral judgements, and end by making a moral judgement yourself!

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07th Apr 2016 13:53

OK

J.Griffiths]</p> <p>[quote=ShirleyM wrote:

You start by saying people should not make moral judgements, and end by making a moral judgement yourself!

[/quote

 

My "moral judgments" are made on the basis of proven immoral behavior by Mr Corbyn.  By contrast Corbyns accusations of unlawful/immoral behavior are based on zero evidence and mere innuendo of totally legal actions by Cameron's father. 

 

So moral judgements are ok then? Make your mind up!

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06th Apr 2016 10:50

Maybe, just maybe ....

why always me wrote:

If I earned £100million, is it really fair that a government would want £40 - £50 million of this?

If everyone paid the tax that was legally due we could ALL pay less tax, instead of the elite few who can afford Panamanian lawyers

PS. ..... and PLEASE don't try to tell me that there are no wealthy people involved in aggressive tax avoidance/evasion, or hiding the proceeds of criminal activity.

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By NeilW
06th Apr 2016 11:39

Fallacy of composition

"If everyone paid the tax that was legally due we could ALL pay less tax, instead of the elite few who can afford Panamanian lawyers"

Actually it's likely that  wouldn't happen.  

It's a fallacy of composition to think that increasing the tax on one set of people reduces it on *all* because taxing somebody affects the downstream income of other people that are paid by those people. 

The overall tax take in Sterling will always be 1 - saving-rate for any positive tax rate due to the circular non-convertible nature of a floating rate currency system.

So some people will earn less income, some will pay less tax, some will pay more tax and some will get more income. The overall turnover in the economy may be actually be smaller. 

Sad as it may sound, tax evasion and tax avoidance is actually stimulative to an economy. 

 

 

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