The Panama Papers
We’ll be learning some details of how rich people avoid taxes by using offshore tax havens, via the Panama Papers. The Guardian is one of a group of news outlets that have access to the papers.
The hidden wealth of some of the world’s most prominent leaders, politicians and celebrities has been revealed by an unprecedented leak of millions of documents that show the myriad ways in which the rich can exploit secretive offshore tax regimes.
The Guardian, working with global partners, will set out details from the first tranche of what are being called “the Panama Papers”. Journalists from more than 80 countries have been reviewing 11.5m files leaked from the database of Mossack Fonseca, the world’s fourth biggest offshore law firm.
The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with the Guardian and the BBC.
Though there is nothing unlawful about using offshore companies, the files raise fundamental questions about the ethics of such tax havens – and the revelations are likely to provoke urgent calls for reforms of a system that critics say is arcane and open to abuse.
Why isn’t it illegal? Why are tax havens legal? I’ve never understood it.
What is Mossack Fonseca?
It is a Panama-based law firm whose services include incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services include wealth management.
Where is it based?
The firm is Panamanian but runs a worldwide operation. Its website boasts of a global network with 600 people working in 42 countries. It has franchises around the world, where separately owned affiliates sign up new customers and have exclusive rights to use its brand. Mossack Fonseca operates in tax havensincluding Switzerland, Cyprus and the British Virgin Islands, and in the British crown dependencies Guernsey, Jersey and the Isle of Man.
It gets to that why question:
Are all people who use offshore structures crooks?
No. Using offshore structures is entirely legal. There are many legitimate reasons for doing so. Business people in countries such as Russia and Ukraine typically put their assets offshore to defend them from “raids” by criminals, and to get around hard currency restrictions. Others use offshore for reasons of inheritance and estate planning.
Oh, well, as long as they’re used to get around hard currency restrictions, that’s fine then. Eh?
Are some people who use offshore structures crooks?
Yes. In a speech last year in Singapore, David Cameron said “the corrupt, criminals and money launderers” take advantage of anonymous company structures. The government is trying to do something about this. It wants to set up a central register that will reveal the beneficial owners of offshore companies. From June, UK companies will have to reveal their “significant” owners for the first time.
This should run for awhile.
As you will have learned by now, the Panama Papers have precipitated a government crisis in Iceland. PM Sigmundur Davíð Gunnlaugsson is facing a vote of non-confidence as Allthing reassembles today after Easter.
He walked out from a TV interview with the investigative programme Kastljós which aired yesterday.
It’s a mess. Apparently he and his wife own a letter-box company to hold claims against Icelandic banks after the financial crash some years ago, and as PM he has boasted about how successfully he has negotiated this kind of claims, all while wearing two hats as it were. The “real”, traditional parties were all but wiped out in the aftermath of the crash, and the latest Gallup shows the Pirate Party having slightly bigger support than the two governing parties combined.
I don’t claim to know much more, this comes from http://www.islandsbloggen.com/ (in Swedish) Video: http://www.islandsbloggen.com/2016/04/statsminister-i-hard-press-efter.html .
Golly. I’ll look for more. Thanks, R.
Gosh, given the visible anger and bitterness still present against the banks in Iceland I observed last year this guy is in for a very unpleasant time. Deservedly so too by the sound of it.
Well, the story might run for a while, then it will be buried, most of the MSM is owned by corporations indulging in some creative accounting. I laughed at the comment, the ‘ethics of tax havens’. This is the plutocracy we’re talking about. It’s an exquisite dilemma for conservative politicians since (1) they’re bankrolled by corporations who probably use offshore tax havens and (2) they probably have a lazy few millions in the BVI ‘banks’ themselves. I noticed that Switzerland was cited as a tax haven, the gnomes of Zurich are one of the financial world’s great survivors.
I’m a retired CPA, btw.
Cameron’s father is one of those who used Panama as a “tax haven”
As some selfish, spoiled, society maven once said: “Taxes are for the little people.”
To address one question in your post: Tax havens aren’t explicitly legal. Rather, their legality is the result of increasingly complex and Byzantine tax codes, international agreements and so on. Often, proving that some legal activity is being used to dodge taxes (rather than simply being a legitimate use of whatever the loophole was created to accommodate) entails trying to divine tea leaves to determine the company’s intent. Sometimes, it’s obvious, but the smarter companies do a better job of obscuring their intent by pairing the tax-dodge with a legit business exercise.
Simplifying the tax code to eliminate these loopholes, of course, is difficult because every last one of them has some constituency that it benefits. No one is willing to give up their special treat just to make sure everyone has enough to eat.