Tax avoidance may be legal, but some change surely lies ahead

complicated of answers. “Is it legal?” rarely returns a straightforward answer when it comes to tax affairs.

The ripple effects of the Panama Papers are being felt in Scotland, and not just in the corridors of law firms and prosecutors.

It has, for example, increased debate about Scottish Limited Partnerships (SLPs), which are themselves exempt from tax as legal entities.

Despite SLPs being around for a century, the Panama Papers have prompted questions about whether they make Scotland an offshore haven of its own, in the same guise as Panama itself.

The question has to be asked: Is there anything wrong with that?

Companies and other legal vehicles created for a special purpose are common everywhere – there’s nothing inherently, legally or morally wrong about that. Plenty of Scottish companies will reap the rewards of such structures.

If reassurance were needed, anti-money laundering rules require law firms to verify the identity of our clients, including, where a corporate structure like an SLP is being used, the identity of the beneficial owners sitting behind that structure.

The nub of the debate is transparency.

Being open about one’s financial structures is a rare thing in business, particularly among privately owned businesses, which constitute such a large portion of our economy. That very requirement to reassure others has not hitherto been needed, but is now a consideration.

That said, it is important not to demonise perfectly legitimate models of business by dint of a particularly broad brush with which to paint special purpose vehicles.

The Panama Papers have sharpened everybody’s focus on the difference.

What has long been an established balancing act between pragmatic commercial judgement and a legalistic examination of a business decision has become much more black and white, and rightly so. There should be little room for debate about what is illegal, or immoral, even if the law itself does not always offer the clarity required to make a clear-cut judgement.

It is in these legal cul-de-sacs that legal liability meets reputational risk, and it is often down to lawyers to offer their clients a legal roadmap out.

After all, this is a business matter, not a political one, even if party leaders have started publishing their tax returns.

For example, only last month the Scottish Parliament rejected calls to ban the ownership of Scottish land in offshore tax havens simply because such a decision was not actually within its legislative competence.

Furthermore, Scottish business owners who are closely following the Panama Papers fallout will no doubt be aware of the international response required to actually crack down on malpractice. No single country has the tools available to really make a difference.

The truth is that anyone willing to break the law can and will manipulate the systems of finance available to them internationally. The world has never been smaller in that respect. Regulation won’t change this.

However, if the Panama Papers achieve anything, it might be to help us better define where the acceptable boundary lies between avoidance and evasion of tax. Chris Harte is chief executive of Scottish law firm Morton Fraser