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Panama Papers Uncover Scope of Tax Avoidance Worldwide

Written by: Keith Tully

Reviewed: Monday 4th April, 2016

Swathes of information relating to the offshore tax affairs of individuals and companies from around the world have been leaked through documents being referred to as the Panama Papers.

The papers have come to light after an extensive investigation by the International Consortium of Investigative Journalists (ICIJ) and relate to the work of Mossack Fonseca, a Panamanian law firm regarded as being among the world’s leading providers of offshore financial services.

Tricks of the trade

Among the information on the activities of the law firm at the centre of the ICIJ’s document leak are details of how the company has been approaching the process of obscuring ownership of money on an enormous scale.

The millions of documents explain in detail how shell companies, bearer shares and bonds, and money laundering processes are deployed without detection and without sanction to assist individuals and businesses in evading taxation.

What it means for the UK?

Prominent individuals from around the world, including Iceland’s prime minister Sigmundur Gunnlaugson, British prime minister David Cameron’s late father and Russian president Vladimir Putin, have all been implicated in tax avoidance cases disclosed by the leak of millions of documents from Panama.

But from the perspective of corporate tax avoidance the revelations raise some significant questions for thousands of companies, including many from the UK.

Of the 300,000 companies on whose behalf Mossack Fonseca is understood to have acted, roughly 50 per cent are registered as being from either the UK or from tax havens that are British-administered territories, according to the ICIJ.

All of which points to tax avoidance taking place on a very large scale by companies registered to British territories and crown dependencies including Guernsey, Jersey and the Isle of Man.

For the current British government, the revelations are potentially embarrassing because it has been keen to present itself as being particularly strong in pursuit of tax avoidance and has been aiming to clampdown on the evasion of tax among individuals, as well as medium-sized service providers and big companies.

Response from HM Revenue & Customs

HMRC has proudly announced in recent weeks and months that its efforts at clamping down on tax avoidance has been successful in increasing revenues delivered to the Treasury.

However, it’s use of Accelerated Payment Notices (APNs), which effectively demand upfront payment of disputed tax amounts in alleged avoidance cases, have been controversial and a source of frustration for hundreds of companies since 2014.

In response to the news that thousands of UK registered companies have been consistently and successfully avoiding their obligations to pay taxes in Britain via the services of Mossack Fonseca, HMRC issued the following statement:

“HMRC is committed to exposing and acting on financial wrongdoing and we relentlessly pursue tax evaders to ensure that they pay every penny of taxes and fines they owe.

“HMRC can confirm that we have 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. We have asked the ICIJ to share the leaked data that they have obtained with us. We will closely examine this data and will act on it swiftly and appropriately.

“We have brought in more than £2 billion from offshore tax evaders since 2010 and the Government has repeatedly strengthened our powers and resources with new criminal offences and higher penalties, so we can take even tougher action against the minority who try to cheat the honest majority by hiding their money in offshore tax havens.

“Our message is clear: there are no safe havens for tax evaders and no-one should be in any doubt that the days of hiding money offshore are gone. The dishonest minority, who can most afford it, must pay their legal share of tax, like the honest majority already does.”

Keith Tully

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Keith Tully
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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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