Paradise Lost? Huge leak exposes tax haven data
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.”