Wednesday 28 September 2016

Panama Papers show morals matter little - and only the little people pay their taxes

Published 05/04/2016 | 02:30

People demonstrate against Iceland's Prime Minister Sigmundur Gunnlaugsson in Reykjavik after a leak of documents stoked anger over his wife owning a tax haven-based company with large claims on the country's collapsed banks. REUTERS/Stigtryggur Johannsson
People demonstrate against Iceland's Prime Minister Sigmundur Gunnlaugsson in Reykjavik after a leak of documents stoked anger over his wife owning a tax haven-based company with large claims on the country's collapsed banks. REUTERS/Stigtryggur Johannsson

The late US hotelier and real estate investor Leona Helmsley was once overheard uttering the immortal line that paying taxes was "only for the little people".

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Of course, this bluster came back to haunt the billionaire 'Queen of the Mean' when she was jailed for filing incorrect tax returns back in the 1980s.

While Helmsley's crime was relatively unsophisticated, systems for minimising, avoiding or illegally evading tax have evolved significantly since then.

The use of offshore accounts in tax havens with deliberately poor disclosure and transparency laws has long been a way for the rich and powerful to hide their wealth.

But the disclosures made in the Panama Papers - over 11 million files leaked from the law firm Mossack Fonseca - reveal how the practice of concealing wealth is now being conducted on a truly industrial scale.

And while systems adopted by Western governments to combat tax dodgers have greatly improved, Helmsley's infamous statement still has more than a ring of truth to it.

The Panama Papers reveal how secretive offshore tax packages were created for world leaders, their associates, politicians and celebrities.

Billions of euro have been shielded from the view of tax authorities in this way.

Russia's premier Vladimir Putin; China's president Xi Jinping; Ukraine's president Petro Poroshenko; Pakistan's prime minister Nawaz Sharif and Iceland's prime minister Sigmundur Gunnlaugsson have all been linked in one way or another with schemes involving the Panamanian law firm.

British prime minister David Cameron - a critic of 'tax secrecy' - is also coming under pressure following revelations that his late father used a Panamanian fund and other offshore arrangements to help shield investments from UK taxes.

Of course, there is nothing illegal about holding an offshore account or using offshore companies and Mossack Fonseca insists that it is acting within the law.

But there are huge ethical questions about the practices outlined in the records, which were sent anonymously to the German newspaper 'Süddeutsche Zeitung' and shared with news organisations via the International Consortium of Investigative Journalists (ICIJ).

The law firm specialises in setting up hard-to-trace offshore companies for clients around the world, ensuring confidentiality and secrecy.

However, the systems are open to abuse and the motives of those involved are open to question.

Paying one's fair share of tax rarely comes into the equation in the morally dubious world that these international tax experts inhabit.

An example of the sharp practice engaged in by the law firm can be seen in its use of bearer shares to create a veil of secrecy surrounding the ownership of companies and assets.

These are share certificates, which give ownership of a company to whoever physically possesses them, while ensuring that their name does not appear on any share register.

The OECD has been actively seeking an end to the use of such certificates.

When the British Virgin Islands cracked down on bearer shares in 2005, Mossack Fonseca simply moved its bearer share clients to Panama.

The legality of many schemes concocted or facilitated by the firm is likely to be tested when tax authorities in various countries get their hands on the Panama Papers documents.

Some have already launched investigations or sought access to the data.

The caretaker Government, in the form of Jobs Minister Richard Bruton, was quick to pledge that if there is any evidence of wrongdoing, it will be dealt with.

We can expect the Revenue Commissioners to be all over the Panama Papers, given that around 360 companies with recorded links to Ireland are mentioned in the documents.

Since 1998, special investigations by the taxman here have netted €2.7bn, with the bulk of this coming from taxes and penalties related to bogus non-resident accounts (€874m) and offshore assets probes (€993m). Indeed, so successful has the Revenue been in tracking down illegally diverted funds that its approach to tackling offshore tax evasion has been adopted by the OECD as best practice.

A key message of the ICIJ investigation is that there are often far-reaching consequences for 'the little people' as a result of the rich shielding their wealth.

One of the most powerful examples cited was in Uganda, where a company wanted to sell an oil field and paid Mossack Fonseca to help it avoid paying $400m in taxes. The method used by the law firm to achieve this was simple. It moved the company's address from one tax haven to another.

The $400m that should have been paid would have been more than Uganda's annual health budget. Instead of having the money to invest in much-needed services, the Ugandan government was led a merry dance in court as it tried unsuccessfully to have the tax paid.

In the meantime, hospitals near the oil field lack equipment. Infant mortality is high.

Mossack Fonseca does not appear to care too much about the morals of its clients, some 23 of whom have had sanctions imposed on them for supporting regimes in North Korea, Zimbabwe, Russia, Iran and Syria.

The law firm has denied allegations that it knowingly helped companies accused of supplying fuel to the Syrian airforce to continue operating after they had been blacklisted.

If the claims are true, who knows how many innocents have been slaughtered by barrel bombs as a result of shady financial dealings?

Irish Independent

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