Par­adise Papers spark po­lit­i­cal back­lash over off­shore fi­nance

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY FT COR­RE­SPON­DENT

The leak of the Par­adise Papers, a trove of 13.4m doc­u­ments claim­ing to show how “the rich get richer through off­shore ma­noeu­vres”, quickly in­flamed both politi­cians and cam­paign­ers.

The leak of the Par­adise Papers, a trove of 13.4m doc­u­ments claim­ing to show how “the rich get richer through off­shore ma­noeu­vres”, quickly in­flamed both politi­cians and cam­paign­ers.

Bernie San­ders, the US se­na­tor, said the leaked data showed how the “in­ter­na­tional oli­garchy” avoided pay­ing its “fair share of taxes”.

Jeremy Cor­byn, the UK op­po­si­tion leader, said so­ci­ety was be­ing dam­aged by “a su­per-rich elite which holds the tax­a­tion sys­tem and the rest of us in con­tempt”.

But for tax ex­perts, the con­clu­sions were less clear. They said the struc­tures re­vealed so far in the new cache were very dif­fer­ent from those ex­posed in a pre­vi­ous leak, last year’s Panama Papers.

Pas­cal Saint-Amans, the top tax of­fi­cial at the Paris-based OECD said: “They are quite dif­fer­ent from the Panama Papers.”

He said the schemes in ques­tion were mostly, if not to­tally, le­gal. “Some are not even ques­tion­able from a le­git­i­macy point of view.”

The Panama Papers led more than 70 gov­ern­ments to launch probes re­sult­ing, for ex­am­ple, in the oust­ing of Nawaz Sharif, Pak­istan’s prime min­is­ter.

The leak also forced Panama, a hold­out in an in­ter­na­tional trans­parency drive, to bow to global pres­sure.

Speak­ing on Mon­day, Bri­tish tax of­fi­cials said 66 crim­i­nal in­ves­ti­ga­tions had arisen from the Panama leak and that they might re­trieve £100m of tax.

But Ap­pleby, the “off­shore magic cir­cle” law firm at the cen­tre of the new leak, af­ter the com­puter servers in sev­eral of its of­fices were hacked, is very dif­fer­ent from Mos­sack Fon­seca, whose data fea­tured in the Panama Papers.

The New York Times, a mem­ber of the In­ter­na­tional Con­sor­tium of In­ves­tiga­tive Jour­nal­ists, the global net­work be­hind both sets of rev­e­la­tions, con­trasted the “pre­dom­i­nantly elite” clients of Ap­pleby with those of Mos­sack Fon­seca, which it said “ap­peared to be less dis­crim­i­nat­ing in the busi­ness it took on”.

It said, how­ever, that in among the “dull read­ing” of the new doc­u­ments, there were some that re­vealed how multi­na­tional com­pa­nies avoided taxes and how the su­per-rich hid their wealth.

The fresh leaks will reignite the de­bate on whether the in­ter­na­tional fi­nan­cial ser­vices in­dus­try plays a pos­i­tive or neg­a­tive role in the global econ­omy. For some, there is lit­tle doubt that the off­shore cen­tres are harm­ful. Last year more than 300 econ­o­mists, in­clud­ing the No­bel Prize win­ner An­gus Deaton, signed a let­ter to world lead­ers that ar­gued: “The ex­is­tence of tax havens does not add to over­all global wealth or well­be­ing; they serve no use­ful eco­nomic pur­pose.”

But there are also strong de­fend­ers of off­shore fi­nance, which is of­ten de­scribed as an es­sen­tial cog in a world of in­creas­ingly cross-bor­der trade and in­vest­ment. The “tax neu­tral­ity” of havens en­sures that in­di­vid­u­als from dif­fer­ent ju­ris­dic­tions mak­ing col­lec­tive in­vest­ments can avoid dou­ble tax­a­tion.

Mark Prag­nell, head of com­mis­sioned projects at Cap­i­tal Eco­nom­ics, a con­sul­tancy, said: “Fun­da­men­tally, off­shore cen­tres fa­cil­i­tate the cross-bor­der econ­omy by help­ing in­di­vid­u­als and or­gan­i­sa­tions do deals across bor­ders.”

Trusts are of­ten used in or­der to pro­tect mi­nors or high-pro­file in­di­vid­u­als’ rights to con­fi­den­tial­ity.

Martin Sul­li­van, chief econ­o­mist for Tax An­a­lysts, a non-profit pub­lisher, said: “There is noth­ing il­le­gal about hav­ing a bank ac­count in Ber­muda. It’s only a prob­lem if you don’t dis­close it on your tax re­turn.”

Off­shore cen­tres have, at least in part, shaken off their rep­u­ta­tion for se­crecy in the wake of an in­ter­na­tional trans­parency drive which will re­sult in the au­to­matic ex­change of tax data by more than 100 other coun­tries, a process that be­gan in Septem­ber.

The US has not joined the new sys­tem, al­though it is au­to­mat­i­cally ex­chang­ing cer­tain in­for­ma­tion un­der its own au­to­matic ex­change rules, known as the For­eign Ac­count Tax Com­pli­ance Act. In June the OECD said “mas­sive progress” had been made over the past year as it re­vealed there would be no sig­nif­i­cant off­shore cen­tres on the black­list of “unco-op­er­a­tive tax havens” it had pre­pared for the G20 group of lead­ing coun­tries.

An­gel Gur­ría, sec­re­tary-gen­eral of the OECD, said on Mon­day that the prob­lems shown in the leaks were a “le­gacy is­sue” and there was now “quite lit­er­ally no place to hide”.

But while the OECD is largely sat­is­fied by the progress made by the off­shore cen­tres, some gov­ern­ments would like to go much fur­ther.

Euro­pean gov­ern­ments have been split over plans to draw up a tax haven “black­list”, with Lon­don, in par­tic­u­lar, op­pos­ing some of the ef­forts. There might also be a re­newal of pres­sure to open up trusts to greater pub­lic scru­tiny, an is­sue on which the UK is strongly op­posed to fur­ther ac­tion on pri­vacy grounds.

There could also be a re­vival of the pres­sure on Bri­tish Over­seas Ter­ri­to­ries and Crown De­pen­den­cies to in­tro­duce cen­tral pub­lic reg­is­ters of com­pany own­er­ship.

This propo­si­tion, a long time goal of for­mer prime min­is­ter David Cameron, was dropped by the pre­vi­ous gov­ern­ment, but Bri­tain’s Labour party has sig­nalled it would con­tinue to push for it.

Such a move would de­light cen­tres such as Sin­ga­pore, which com­pete with the Over­seas Ter­ri­to­ries and Crown De­pen­den­cies, ac­cord­ing to a lawyer spe­cial­is­ing in off­shore work who did not wish to be named. “They are rub­bing their hands when they think about what might flow from a Bri­tish own goal on this.”

He ar­gued that “or­di­nary peo­ple” would be losers if Bri­tain’s off­shore cen­tres were dam­aged by a fur­ther crack­down be­cause they were widely used by the pen­sion funds on which they de­pend.

But there re­mains pub­lic sup­port for tack­ling off­shore fi­nance and there is a wide­spread per­cep­tion that off­shore cen­tres shift the bur­den of tax­a­tion to or­di­nary tax­pay­ers and give multi­na­tional cor­po­ra­tions an edge over smaller com­peti­tors.

The grow­ing con­cern about in­equal­ity is driv­ing a lot of the de­bate, ac­cord­ing to Mr Saint-Amans: “There is still po­lit­i­cal and pub­lic pres­sure to fight the tax havens.”

Par­adise Papers spark po­lit­i­cal back­lash: “Mil­lions of con­fi­den­tial doc­u­ments de­tail­ing the tax min­i­miza­tion strate­gies of wealthy in­di­vid­u­als and cor­po­ra­tions have been leaked to the In­ter­na­tional Con­sor­tium of In­ves­tiga­tive Jour­nal­ists.”

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