Following the media leak of some 11.5 million documents from Panamanian offshore service provider and law firm Mossack Fonseca, HM Revenue & Customs (HMRC) has responded to the story.
What's the Panama Paper leak?
Mossack Fonseca incorporated offshore companies in locations such as Panama, and the British Virgin Islands (BVI) and other tax havens/financial centres. It also offered services to company owners, many of whom may have wished to hide their wealth from tax authorities and others, and also acting as nominee directors. The offshore locations do not have a publicly available register of companies and their owners, such as we have the at the UK's Companies House, the result being that many individuals, trusts and companies across the globe are able to hide their assets via offshore companies.
A database of information was leaked to the International Consortium of Investigative Journalists (ICIJ) who shared the data with news organisations around the world, including in the UK the BBC and the Guardian. It has revealed that many current and past world leaders, politicians, sportstars etc are clients of the Mossack Fonseca and has provided details of their companies.
HMRC's response
Tax authorities around the world are acting on the data. HMRC has published a press release and says that it
"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."
HMRC observes that,
"the data we receive and the leads we are pursuing will not necessarily prove wrongdoing and result in fines or convictions. Such data is often incomplete or years out-of-date or does not contain the information required to identify individuals. But it can help build up a bigger picture which allows us to join the dots and catch tax evaders...Our Fraud Investigation Service is currently investigating more than 1,100 cases of offshore evasion around the world, with more than 90 individuals subject to current criminal investigation."
New UK measures
The UK has already introduced new measures to combat offshore tax fraud these include:
- Higher financial penalties for those hiding assets offshore, such as, for the first time, taking part of the evaded asset as a penalty. These are in addition to existing measures, which already allow for fines of up to 300% of any tax found to have been hidden offshore
- New civil penalties on those who enable tax evasion, so they will face a penalty as well as the tax evader
- Public naming both of tax evaders and those who enable tax evasion
- A new criminal offence for corporations that fail to prevent the facilitation of tax evasion.
- Anew strict liability criminal offence for offshore evasion.
- Permanent non-dom status ends on 5 April 2017: inheritance tax will be levied on all UK residential property, regardless of its holding structure.
Comment
As most people who are involved in tax well know, the data contained in the Panama Papers are merely one tip of a iceberg of hidden offshore assets. Quite how any tax authority such as HMRC can prevent this issue is unclear when clearly many of those in power are benefiting from the lack of transparency offered by offshore companies. For example, take any family trust with offshore interests, check out the Land Registry details for a sample of property in any high street in the UK, delve (a little) into any number of tax avoidance schemes and you will find offshore companies often run by nominee directors and based on an island in a warm sea.
The UK has recently made changes that require companies and LLPs to maintain a register of persons with significant control. Unless the same rule is universally applied in jurisdictions (including all the UK's offshore dependencies and territories) and not just South American countries and in the Caribbean, then individuals will continue, just like all those South Sea pirates in days of yore to hide their assets in sunny places.
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