Tax havens shrouded in se­crecy have be­come an out­dated con­cept

The Star Late Edition - - OPINION&ANALYSIS - Ernest Mazan­sky Ernest Mazan­sky, is tax di­rec­tor at Werks­mans At­tor­neys.

THIS seems to be much of a re­play of the Panama Pa­pers. But I have to say that, 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 so-called Caribbean tax havens (it’s not even lo­cated in the Caribbean) and it’s a very well reg­u­lated and so­phis­ti­cated fi­nan­cial ju­ris­dic­tion. In fact, Ber­muda to­day is the sec­ond-largest rein­sur­ance mar­ket in the world.

Jour­nal­ists have been quick, and cor­rectly so, to point out that merely be­cause the names of in­di­vid­u­als and com­pa­nies ap­pear on the lists, it does not mean that they have done any­thing il­le­gal.

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

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

This is not an easy sub­ject to de­bate. Ei­ther what one is do­ing is le­gal or it is not. And if it is le­gal, then that should be the end of the mat­ter, and no com­pany or per­son 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 the law. 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.

And when a gov­ern­ment or NGO or jour­nal­ist raises the ques­tion of ethics and moral­ity by a tax­payer, one starts trav­el­ling along a very rocky road.

In every coun­try of 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 or not tax is payable or not payable is en­tirely a ques­tion of law based on the facts. The minute one starts in­tro­duc­ing, what I might call, qual­i­ta­tive or soft is­sues such as ethics and moral­ity, 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. The NGO com­mented that the tax avoided could be com­pared to the amount of aid given to that coun­try, im­ply­ing that but for the avoid­ance, there might not have been the need to grant the aid.

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. And why should a for­eigner con­trib­ute to the tax cof­fers only for it to be looted by cor­rupt politi­cians?

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.

Ex­pected

The only pos­si­ble and cor­rect ba­sis to de­ter­mine the tax li­a­bil­ity is based on the statute and the law as in­ter­preted by the courts. And if that is to be ex­pected of the tax­payer, and rightly so, then that must be ex­pected of oth­ers as well.

More­over, the idea that th­ese 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. This was cer­tainly true up un­til not so long ago, but to­day that is no longer the case.

Most of th­ese are now highly reg­u­lated and there is a great deal of trans­parency, es­pe­cially as re­gards tax af­fairs. Com­menc­ing this year there will be the au­to­matic ex­change of in­for­ma­tion among most coun­tries in the world who 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 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 Sars (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.

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