Panama Papers Highlights Financial Services Hypocrisy

by | Apr 28, 2016 | Financial Featured

If the blanket global news coverage of recent weeks has proved anything, it is that very few people like paying their taxes. The revelations of the Panama Papers have touched the lives and reputations of people worldwide and highlighted just how ingrained is the human desire to pay less tax.

There are, of course, many legitimate reasons for companies to exist in every jurisdiction of the world and for people and organisations to use them. However, where these reasons are exposed is when the owners of these companies use them specifically for the combination of low or zero tax rates and secrecy. It is this combination added to the onshore nature of many of the owners that is causing problems.

Since the application of income and capital gains taxes are (almost everywhere) based on where you live, the country of residence of the individuals concerned is a problem. For people resident in countries where the rules are forgiving, such as other small nation tax havens, it is completely legal to open and operate a company in another country and not declare it. However, for the majority of people named that are currently resident in a high-tax nation, such as the UK, France, Germany or wherever, they have almost certainly committed one or more crimes by failing to report the structure and failing to pay any associated taxes.

This is simply a segment of what is still a very active business area. Whether it is transfer pricing for international businesses, offshore trusts for estate planning or second passports for mobility and diversification, the international financial services sector does not look likely to go away anytime soon.

While the actions of groups like the FATF have had a major impact in bringing some of the more Wild West-like jurisdictions into line, there can never really be an end to “offshore”. These smaller nations obviously rely on the income generated into their economy by financial and corporate services and would be severely harmed if it were to stop.

They also highlight – with some justification – the hypocrisy of having countries like the United States making demands about offshore rules when states such as Delaware compete in the same market. It would seem that as long as these double standards remain, taxes will leak away from the coffers of the rich and into the welcoming arms of a range of small and sunny islands.

Additional reading on Tax Avoidance By the Numbers: The Paradise Papers highlights the the famous names and players from companies ranging from Amazon to Uber involved in these tax avoidance schemes.