Secrets of cash stashed overseas
An investigation by journalists in several countries has revealed a set of secret documents that show that hundreds of people and companies are avoiding paying millions of pounds in tax.
What is tax?
Almost everyone who earns money must give some of it to their government. It pays for services such as the armed forces, education, housing, the police and public health services. Usually, the more money you earn, the more tax you pay. Businesses must pay tax on the money they make, and governments add taxes to some goods that people buy, such as cars, clothes and houses. This is called value added tax (VAT).
How do people avoid paying tax?
One way of avoiding paying tax is by using a system called offshore banking. That means using banks in foreign – offshore – countries, rather than your own. One social-media user, DanGliesack, compared it to having two separate piggy banks: imagine you have a piggy bank where you save your pocket money. Your parents check it from time to time to see how much money you have. One day you decide you don’t want them to know how much money you have. You get another piggy bank and secretly take it to your friend’s house. You then put your savings in the new piggy bank and don’t tell your parents about your secret stash of cash. This is what those named in the secret documents have reportedly done. It is claimed they used banks in a tax haven (a country or territory where people pay little or no tax) to avoid paying tax in the UK. Tax havens include several tropical islands in the Caribbean – such as the Bahamas – which is why the secret papers have been named the Paradise Papers.
Is this against the law?
In the UK, it is not against the law to use a bank in another country if you declare this to UK tax officials. However, some people argue offshore banking is morally wrong. They say that it is not fair for people to avoid paying tax because it means the Government has less money to pay for services. It is usually only very rich people and companies who use tax havens; most people pay all their tax in full.
Who is involved?
Many famous people are named in the documents. £10 million of the Queen’s money is said to have been invested in offshore companies. Buckingham Palace says the Queen knew nothing about this and has not avoided paying tax. It is claimed that the Formula One world champion Lewis Hamilton used tax havens to avoid paying VAT on a private jet that he bought in 2013. Hamilton’s lawyers said he has done nothing illegal. Pop stars, actors and other members of the royal family are also named in the Paradise Papers, along with companies including Apple and Nike, two of the
world’s biggest businesses.
How have people reacted?
Labour leader Jeremy Corbyn said people should think about the damage they do to society by not paying taxes. Theresa May, the UK Prime Minister, said people and businesses should “pay the tax that is due”.
An Apple store.