Panama Papers

13 April 2016

On 3rd April 2016 possibly one of the biggest data leaks of all time was revealed to the worldwide public.

Over 11 million documents from Panamanian law firm Mossack Fonseca covering the last 4 decades were obtained by an international coalition of media outlets. These documents are purported to contain information detailing how the law firm assisted the wealthy to keep their income and capital secret from the authorities.

Panama has long been seen as a tax haven who’s secrecy laws enable a firewall to be put up stopping the world’s tax authorities from establishing the true ownership of assets.

For example a large commercial property could be acquired by a UK resident individual through a structure created in Panama, when it is later sold any profits would not be subject to UK tax even though the funds will ultimately be enjoyed by a UK resident individual.

Much has been reported in the press about high profile politicians around the world who have been implicated in the papers, and there have even been calls for resignations of state leaders.

Yesterday, as investigators prepared to meet in Paris to launch an unprecedented inquiry into global tax evasion the offices of Mossack Fonseca in Panama were raided by the local police. What will come from that raid remains to be seen, but there have been questions as to why other international offices of the firm, such as those in London, have not also been raided.

The leak has led to the mainstream press asking questions as to the effectiveness of the current UK tax rules and much misinformation and poorly informed speculation has been published.

One such article called into question the fact that a leading politician received gifts totalling  £200,000 from their mother, and if she survived the gift for 7 years then no inheritance tax would be payable AVOIDING a potential £80,000 of tax.

There is nothing illegal, immoral, or wrong in any way with this sort of planning. Why should tax be paid on a gift from mother to child of capital built up over her lifetime from taxed income (often taxed at higher rates of up to 90% if earned in the 50’s and 60’s). Yes, if it’s left in her hands at death then the state take inheritance tax, but if she does not need it and gifts it to her children during her lifetime then why should that be subjected to tax?

There are wider issues here, there is a question as to whether tax was actually paid on the capital, but the worrying issue here is the perception of the general public.

For many years the government has made bold statements about cracking down on tax avoidance and evasion, it has done little on the (illegal) evasion and focused heavily on the (legal) avoidance. The press has happily reported any positive steps made, but now the momentum generated has turned upon the politicians themselves.

Tax Planning, referred to as ‘Avoidance’ by the government and the press, remains legal. In the UK if a taxpayer and HM Revenue & Customs disagree as to the tax treatment of a transaction it is ultimately the responsibility of the courts to decide if an arrangement such as that above is within the letter of the law. If it is found not to be then the tax is rightly payable will be paid. However if an arrangement succeeds, as above, then tax is not payable.

Unfortunately we currently live in an age of ‘trial by press’ and they are rarely sufficiently informed to lead the publics opinions on taxation.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

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