Tax law is clear cut and li­a­bil­ity is not soft or sub­jec­tive

Business Day - - OPINION -

The re­cently re­leased Par­adise Pa­pers may seem like a re­play of the Panama Pa­pers, but in terms of re­spectabil­ity of ju­ris­dic­tions and their stand­ing in the fi­nan­cial world, Ber­muda and Panama are not — and have never been — in the same league.

Ber­muda has never been one of the Caribbean tax havens (it is not even lo­cated in the Caribbean) and is a very well-reg­u­lated and so­phis­ti­cated fi­nan­cial ju­ris­dic­tion.

In fact, Ber­muda is the sec­ond-largest rein­sur­ance mar­ket in the world.

Jour­nal­ists have been quick to point out that in­di­vid­u­als and com­pa­nies whose names ap­pear on the lists have not nec­es­sar­ily done any­thing il­le­gal.

But that has not stopped them from nam­ing those in­di­vid­u­als and com­pa­nies, and the mere fact they have been named al­ready raises the pos­si­bil­ity of taint.

Again, the me­dia ac­knowl­edge that it is quite le­gal to en­gage in tax avoid­ance but then raise is­sues as to the ethics and moral­ity of the prac­tice.

This is not an easy sub­ject to de­bate. Ei­ther what one is do­ing is le­gal or it is not. And if it is le­gal, that should be the end of the mat­ter; no com­pany or in­di­vid­ual should need to jus­tify what it or he or she has done.

If any gov­ern­ment does not like how the law is work­ing out, it is free to change it. As one judge in an English case fa­mously said, the doors of par­lia­ment are open ev­ery year to the com­mis­sioner to seek to amend the law.

When a gov­ern­ment, non­govern­ment or­gan­i­sa­tion (NGO) or jour­nal­ist raises the ques­tion of ethics and moral­ity in re­la­tion to a tax­payer, one starts trav­el­ling along a very rocky road.

In ev­ery coun­try in the world tax is gov­erned by a statute passed by the leg­is­la­ture. In­ter­pre­ta­tion of that statute is a le­gal ques­tion based on the rel­e­vant facts and cir­cum­stances.

Whether tax is payable or not payable is a ques­tion of law based on the facts. The minute one in­tro­duces what might be called qual­i­ta­tive or soft is­sues, one opens the door to the tax­payer rais­ing the same is­sues.

For ex­am­ple, in one case an NGO crit­i­cised an in­vestor for struc­tur­ing its af­fairs such that it avoided with­hold­ing tax in a par­tic­u­lar coun­try in Africa, say­ing the tax avoided could be com­pared to the amount of aid given to that coun­try. This im­plied that but for the avoid­ance, there might not have been the need to grant the aid.

How­ever, the tax­payer might have re­sponded that in that par­tic­u­lar coun­try, the gover­nance is not what it might be, the hu­man rights record is not of the best, the level of cor­rup­tion and waste­ful ex­pen­di­ture leaves much to be de­sired and if those ele­ments were not present, there would not be the need for aid ei­ther.

It is to­tally un­ac­cept­able for a tax­payer to base its cal­cu­la­tion of its tax li­a­bil­ity on such qual­i­ta­tive or soft is­sues such as the ex­tent of cor­rup­tion or the hu­man rights record of the rel­e­vant coun­try. The only cor­rect ba­sis to de­ter­mine the tax li­a­bil­ity is the law, as in­ter­preted by the courts.

And if that is to be ex­pected of the tax­payer, it must be ex­pected of oth­ers as well.

More­over, the idea that is­land economies such as Ber­muda, Jer­sey, Guernsey, Isle of Man and so on are tax havens in the tra­di­tional sense, where trans­ac­tions are shrouded in se­crecy, is an out­dated con­cept.

Most are now highly reg­u­lated and there is a great deal of trans­parency, es­pe­cially when it comes to tax af­fairs.

THE ONLY POS­SI­BLE AND COR­RECT BA­SIS TO DE­TER­MINE THE TAX LI­A­BIL­ITY IS THE LAW, AS IN­TER­PRETED BY THE COURTS

As from 2017, there will be an au­to­matic ex­change of in­for­ma­tion among most coun­tries in the world that have signed up to the Com­mon Re­port­ing Stan­dards, where fi­nan­cial in­sti­tu­tions will re­port in­vest­ment de­tails to their lo­cal tax au­thor­i­ties, who will then re­port those de­tails to the tax au­thor­i­ties of the coun­try of res­i­dence of the rel­e­vant in­vestor.

So if a South African res­i­dent has a bank ac­count (or a trust with a bank ac­count) in Jer­sey or Guernsey or Switzerland, that in­for­ma­tion will be ex­changed and brought to the at­ten­tion of the South African Rev­enue Ser­vice (or the tax au­thor­i­ties in the UK or France or Ger­many, or wher­ever). To sug­gest that hid­ing money in these ju­ris­dic­tions is to rely on se­crecy is sim­ply no longer a cor­rect per­cep­tion.

Fury : A man protests in Ice­land af­ter the Panama Pa­pers leak in 2016.

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