Paradise Lost? Huge leak exposes tax haven data

Tax Haven. The Paradise Papers
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Stop me if you’ve heard this one before: there’s been a huge leak of documents that expose the offshore banking activities of world’s luminaries.

It’s called the Paradise Papers. In terms of sheer volume, it’s second only to the gargantuan Panama Papers leak. It’s the latest trove of documents to draw back the veil on how world’s wealthiest shift their assets through a labyrinth of tax havens and shell companies.

The leak follows a familiar formula: an anonymous source leaked to the German newspaper Suddeutsche Zeitung. The German broadsheet shared the data with the International Consortium of Investigative Journalists and several other news organizations, et voila, a scandal is born.

The parties implicated are a who’s who: Her Majesty the Queen, Bono, Glencore (one of the world’s largest mining and agribusinesses). Facebook and Twitter, too. All manner of despots, dynasties, politicians and plutocrats.

“In a sense, it doesn’t tell us anything new,” accountant and tax campaigner Richard Murphy told AccountingWEB. “It tells us there are people who want to hide their wealth and are doing it offshore. It tells us there are a legion of accountants and lawyers who are willing to do it for them for a fee.”

Although unsurprised by the contents of the Paradise Papers, Murphy, an ICAEW qualified-accountant, offered a scathing assessment of what he sees as accountancy’s continuing support of tax avoidance and evasion.

“If it doesn’t change, the profession will need to lose power over its accounting standards. And they will if this continues. The public won’t continue to permit this forever.

“This isn’t just about tax. It’s about the free market. Tax havens undermine the free market. They limit access to capital, they distort access to data via accessible accounts and accountants are the ones helping to carry it out.”

What now for HMRC?

According to Rebecca Busfield, a partner at Watt Busfield Tax Investigations, the leak doesn’t necessarily provide the complete evidence required for HMRC to swoop on those guilty of tax evasion.

“From a brief reading, the funds seem mainly located in Bermuda and the Cayman Islands, which have both signed up to the Common Reporting Standard (CRS) from 2017. We expect HMRC to be very interested in the information that they could receive in relation to this data leak.

“However, there may be challenges as to what HMRC can do if the information has been stolen. There would be concerns about the accuracy and completeness of the information.”

Appleby, the law firm at the centre of the leak, are also experts, and as Busfield pointed out it’s likely that any Appleby clients will have paid for careful tax advice in relation to their arrangements. “But, technical and implementation mistakes can arise,” she said.

“HMRC gets particularly upset about tax irregularities involving offshore investments and are on the lookout for a juicy prosecution in relation to offshore tax evasion. Anyone with offshore tax issues would be advised to get a second opinion if they have not done so already.

“The rules around non-domiciled individuals are not as favourable as they once were. HMRC is operating the Worldwide Disclosure Facility (WDF) until September 2018, after which HMRC warn the penalties will be much tougher.”

As for Murphy, the prospect of HMRC clamping down isn’t a satisfactory outcome. The problem spreads further, he said. First in line is discerning who really owns companies. “There are four people at Companies House who are monitoring the ownership of over four million companies. It needs to be properly funded and taken seriously and companies must be required to pay for their own regulation,” said Murphy.

“Getting this put right is easy. It’s about connecting databases. Banks just need to tell regulators who owns the companies they supply services to. They know because they’re the ones that get people to come in face-to-face and slap their passport on the desk. And that data needs to prove the publicly available information.”

The accounting profession, he said, also needs to let go of outdated notions. “Accountants are regulated by their institutes and the institutes have a royal charter and the royal charter includes a public service requirement. The client is not who accountants were incorporated to serve. The profession exists to serve the public. If it can’t live with that, sweep the whole damn lot of professional bodies away and let’s start again.

“I expect the accounting profession to get on with this now and say ‘we want country-by-country reporting, we want an end to tax havens, and we want the International Accounting Standards Board to help deliver meaningful data ’. I want the accounting bodies to say this out loud and in public: ‘we want this’.

“The profession deals with minutiae, with subsections and clauses. But now it’s time for the profession to sweat the big stuff. Let’s put the profession back on the right footing.”

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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07th Nov 2017 12:11

Must admit I only watched about 5 minutes of it last night. I'm sure that there are many people abusing the system and one hopes that HMRC and other law enforecement agencies will find these and deal with them. However, my overriding impression from those 5 minutes and other articles that I've read was that the programme makers sought to tar everyone with the same brush. Their view seems to be that if people are holding their funds offshore, they must be doing so for nefarious reasons.

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07th Nov 2017 15:02

I see Richard Murphy is wheeling out the same bullish rhetoric as always. I found this one a particular gem.

"The client is not who accountants were incorporated to serve. The profession exists to serve the public. "

We serve the public only so far as aiming to ensure that our clients do nothing illegal to reduce their tax bills. Beyond that, I'm pretty sure most accountants would say that the client, who is paying their fees, is precisely who they serve.

Now Murphy himself appears to have gone wholly over to HMRC's side. Indeed, in advocating that we "sweep the whole damn lot of professional bodies away" if we don't fall into line he would appear to wholly support HMRC's ongoing moves to force taxpayers to deal with them direct. Forcing the little man to deal with complex matters alone like this would hardly be serving the public interest.

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08th Nov 2017 10:49

And what about accountants, who are not members of professional bodies and what about the legal profession that enjoys protected status? Most of these schemes require international lawyers on the case. The average accountant, who is a member of a professional body, which may be chartered, and who deals with small business never comes across these off-shore schemes. It is completely wrong to tar all accountants with the same brush, and ignore the part the legal profession pays in this.

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08th Nov 2017 10:53

"Getting this put right is easy. It’s about connecting databases"

Oh, readers, please pass this on to anyone you know who works in IT. They could do with a laugh!

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By paulm6
08th Nov 2017 11:05

When does tax planning become tax avoidance? When does tax avoidance become tax evasion? It's all a bit of a mess really. I think the accounting profession is in trouble here. We are clearly complicit with large accountancy firms producing road maps and how to guides for tax avoidance / evasion. And I think as long as the wealthy client pays the fees the public service aspect, well, I think you can forget it. Something drastic has to change to alter that power relationship.

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08th Nov 2017 11:10

Or maybe this is about government? So much of what is being disclosed seems to involve British territories. If knowing who owns what is a key to elimating tax avoidance, then the government could consider getting British territories to make more of this information public.

Of course that may push the problem somewhere else...

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to Huw Williams
08th Nov 2017 11:13

The long grass perhaps?

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to raybackler
09th Nov 2017 11:27

They would not do that! Just have to sort out a few other things first like Brexit, NHS, cabinet, international trade agreements, our approach to Israel, North Korea, President Trump, President Putin, Asylum seekers....

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08th Nov 2017 11:19

Please let’s stop talking about the Queen in all this. She isn’t actually liable to tax, she pays voluntarily so where she puts her money is her business and given it is actually public money you could say she had a duty to get the best returns she can.
As for the rest, let’s just get a joined up to tax code which taxes everyone on the basis of what they owe - and that goes for the self employed tradesman who selectively reports turnover as well as the super rich - we all have a part to play.
Perhaps the answer is a flat rate for everyone with no allowances - no need for an accountant then either.

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By djn24
to AmandaElliott
08th Nov 2017 11:30

[quote=AmandaElliott]

"Please let’s stop talking about the Queen in all this. She isn’t actually liable to tax, she pays voluntarily so where she puts her money is her business and given it is actually public money you could say she had a duty to get the best returns she can."
I still cringe when I hear this. How on earth can the Queen pay tax voluntarily, she should be subject to tax like all us peasants :-)

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to djn24
08th Nov 2017 13:10

Why would we levy tax on money that is paid from public funds - that happens and the world really has gone mad.

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to AmandaElliott
09th Nov 2017 11:30

Because that is the way we do things here!

We hand out benefits to people on the basis of need, and then tax them on them.

We charge VAT to schools, colleges and universities and then give them a grant so they can pay it

...

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By djn24
to AmandaElliott
10th Nov 2017 14:19

AmandaElliott wrote:

Why would we levy tax on money that is paid from public funds - that happens and the world really has gone mad.

Quite simple really, the money she earns she will pay tax on. Other money given out by the government is taxable so why not- esa, job seekers etc.
The Queen should not be exempt.

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08th Nov 2017 11:26

As long as legislation allows abuse, what's the problem ?
We just don't have a government with the bumptiousness, the balls nor the bravery to tackle such abuse .
It's a shame we have cretins in power who think they can squeeze more from small businesses with the likes of MTD, rather than face up to the real world of avoidance and the fine line between evasion.
A cynic might add to those temporarily in power..... why cook the golden goose ?

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08th Nov 2017 11:59

When you look at the whole scheme of things it doesn't really matter if the "rich" have their money wherever, because in order to keep the wheels turning that money has to come back into the world economy. There is a point to be made here. Is the money better off in Government hands or others?
Mind you if it's good enough for the Queen, the Labour party, Lewis Hamilton etc. it's good enough for us.

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08th Nov 2017 12:44

Why would you be giving such prominence to Murphy' views? To date there is no demonstrable law broken. Just a load of bile and cant about rich people. As an accounting site surely you can do better than this.

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08th Nov 2017 12:44

Why would you be giving such prominence to Murphy' views? To date there is no demonstrable law broken. Just a load of bile and cant about rich people. As an accounting site surely you can do better than this.

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By Oppco
08th Nov 2017 13:16

Exactly. If these people have broken any law they should be charged accordingly. If no law has been broken, it is for the government to legislate if they want change. But please no more bleating about 'fair share of tax'

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08th Nov 2017 13:49

I've always said that there is no "grey area". Tax evasion and tax avoidance are two completely different things and should never be talked about in the same way (which HMRC are trying to get the populace to do).
Artificial schemes or schemes that have artificial elements in them are tax evasion (not rocket science).

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to johnjenkins
09th Nov 2017 13:42

No John. Schemes are schemes. They have to be registered. HMRC has the power to stop them. That would be the law.

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to listerramjet
09th Nov 2017 14:05

Not too many years ago HMRC stated quite clearly that any scheme with artificial elements would not be allowed. So why would anyone register a scheme knowing that it would be rejected. What has happened is that HMRC haven't looked at the schemes (perhaps on purpose) then gone to tribunal to get them disallowed.

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08th Nov 2017 15:32

The investment vehicle offshore may be free of tax bcause it resides in a tax haven but if the investor is resident in the UK then income from the investment is taxable in the UK and being from a tax free vehicle the ROI should be greater. Income from an investment in another European country, say, may suffer tax in that country and the UK then gets a reduced amount of tax as a result of double tax relief. My pension fund is tax free (not offshore), does that make me a tax avoider?

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to tonyaustin
09th Nov 2017 11:34

Yes, that does make you a tax avoider, in the same way that putting money into a ISA etc is avoiding tax. Avoiding tax is perfectly legal.

One of my clients did the ultimate in tax avoidance - he retired and so avoided any more income on which to pay tax.

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08th Nov 2017 16:55

so why have it offshore....?

I heard the IOM finance minister coming out with a similar line....of course if that person doesn't bring it into the UK then it never gets taxed.....I wonder if they use that account for drawing down on when they are on holiday.....hmmmm lets think about that.

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to justsotax
09th Nov 2017 11:37

But there may be some perfectly sensible reasons for using a low-tax country. I used to deal with a multinational group and the complexities of international tax agreements and double tax relief made it sensible to route money to make the most of the tax reliefs available, rather than ending up paying tax in a country and then paying it again (without the benefit of double tax relief) when bringing the money back into the UK.

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to justsotax
09th Nov 2017 13:46

Justsotax. What you are describing is what we term breaking the law. And It wouldn't work. You would get caught. There are mechanisms in place to ensure you would get caught.

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to listerramjet
09th Nov 2017 17:44

Could you please explain this. What laws are being broken? What mechanisms are you talking about?

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09th Nov 2017 08:40

Many companies and business owners use nil rate places to carry on businesses becase it means that they are no subject to a myraid of tax regimes and ending up being double or treblely taxed and then having to go through the process of getting refunds. What this means for many is that that they are paying tax on profits in their home country. There is no tax avoaidance just prudence at to deal with layers of red tape.

Finally Francois Badenhorst should know better than to write this article as if it were in one of the tabloids. This is an accounting web site blog with the majority of participants being professionals.

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10th Nov 2017 09:56

the 'myriad' of tax regimes is the best reason I have heard yet for explain why people use these accounts offshore.

Given the Queen is resident in the UK I can only stand back in wonderment as to why her advisers suggested 'investing' offshore...what another tax regime...

I do struggle with the Lewis hamilton one though (he doesn't even live here).....lease....to you to me to you....yep not contrived.

For the rich and famous reducing their tax exposure isn't about paying a lower rate of tax but about paying next to no tax. Of course most of us would prefer to do that....but then we would probably live in a country like Zimbabwe if we all went that way....

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10th Nov 2017 13:02

I think something that we might have just glossed over is the fact that the rich and large business can go virtually anywhere in the world these days. They can live in different places. Do they even have to have a country of residence. OK they need a passport, but that is just to allow them to travel (an identity so to speak).
So clearly we need a different set up for these business and people.

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