Panama law firm announces major data hack. Resignation of Icelandic PM. Swiss police raid Uefa offices. 20 global leaders alleged to have used tax havens. British PM gives 5 different answers to questions on finance after allegations that his father paid no tax for 30 years then eventually admits he profited from father’s offshore fund. China shuts down the Internet. Laundered cash from Britain’s largest gold bullion robbery was hidden in Panama. Argentinean President is being questioned by federal authorities. Thailand's Anti-Money Laundering Office investigating 16 people, including current and former politicians and well-known business people. Australia's tax office investigating 800 individuals named in data. Ukraine's President Petro Poroshenko says he has done nothing wrong. Austria's financial markets regulator says it is investigating whether two banks breached rules on money laundering after being named in the leaks. France opens a preliminary investigation into money laundering and tax fraud. Sanctions busting, arms dealing and more.
It sounds like the plots of half a dozen Nordic Noir television series, but it is all part of one scandal that took 350 reporters to reveal.
The Panama Papers includes more than 11.5 million financial and legal records from Panama law firm, Mossack Fonseca, exposing a global web that can enable crime and corruption.
The UK's Financial Conduct Authority has given banks and investment businesses only until Friday April 15th to hand over all dealings with the law firm in Panama.
Even HMRC got a mention with much humour arising from the revelation that 600 offices of HMRC were owned and operated by a group of offshore companies that paid little or no UK tax.
What Is A Tax Haven?
Traditional tax havens are countries or regions where personal and business taxes are likely to be very low, or even non-existent. These countries often attract individuals and companies who are seeking to pay less tax than they would at home. Businesses may move their headquarters to a tax haven, or individuals choose to live there for some or all of the year, to qualify for the lower tax regime.
Some countries or jurisdictions construct tax legislation with the explicit intention of becoming havens for those seeking to avoid tax in their own countries. This gives rise to tax competition between nations eager to get businesses to set up within their borders.
USA Tax Havens
The term tax haven usually conjures up images of yachts, sea, sunshine and palm fringed, coconut white sandy beaches. But this isn't quite accurate.
President Obama likes to talk about Ugland House in the Cayman Islands that is home to around 18,000 companies, yet Delaware, which has a population of around 935,000, is home to some 945,000 companies, many of which are shell companies.
Shruti Shah, vice-president of programs and operations at Transparency International told The Guardian, “You don’t really have to go to Panama or other tax havens. They are not the only ones making it possible for corrupt officials and other criminals to launder their money. You can do it in every state in the US. In every state in the US, you can incorporate an LLC – [a limited liability company] – or another legal entity and you don’t have to disclose who the beneficiary on it is. In fact, Delaware is so synonymous with anonymous companies and ghost corporations that it was named in Transparency International’s Unmask the Corrupt campaign as one of the most symbolic cases of corruption.”
UK Tax Havens
Without mentioning the numerous actual offshore islands like Jersey, Cayman or the BVI, closer to home The City of London, a pioneer in offshore currency trading in the 1950's still helps non-residents pay little or no tax. Changes to UK corporate tax law in 2011 allowed multinational's to pay little or no UK tax on foreign sourced income.
According to The Sunday Times January 2016, at least 6 of Britain’s 10 largest multinationals (including Shell, British American Tobacco and Lloyds Banking Group) paid no UK corporation tax in 2014.
Other companies that paid no UK corporation tax in 2014 were brewer SABMiller and AstraZeneca. BP and Glaxo Smith Kline declined to reveal how much UK corporation tax they paid but Glaxo Smith Kline did say they paid something.
Social network giant Facebook paid around £4,320 in UK corporation tax in 2014.
Few of us are paid enough to worry about which tax optimisation scheme to arrange, but for expats, advice on the best tax practices and even the best places to work is vital.
The semantics about tax evasion and avoidance by millionaires and corporations is sadly pointless. Both mean that people and companies do not contribute their fair share of the costs of schools, universities, hospitals, roads, railways, police and the other entire infrastructure that enables them to work or live in that country.
Reasons Expatriates Move Overseas
For many, especially the British, the weather can play a massive role in the reason to move overseas. Other reasons include a relaxed lifestyle, more career opportunities and apparently cost-of-living. Whilst it may be true that one may survive on $250PCM living in a mud hut in the Golden Triangle eating rice every day, to maintain similar standards as you may be use to back home, will be expensive.
Another reason to move overseas can be to build up a nest egg, and that is why places such as Gulf States with low tax regimes are popular, particularly if the expats can avoid paying tax at home, or paying off their student loans while overseas.
But again, do not be fooled. Savings made on business rates and local taxes will be recouped elsewhere. Cost-of-living in some expat hot spots is ridiculously high and you will also pay in time due to red-tape and bureaucracy.
One recent example of the cost of expatriation is from a major EU expat hotspot. According to a source at iPMI Magazine, Government and local councils have no issue helping themselves to money from business and personal expat bank accounts. In some instances monies were owed. In other instances it was a major mistake. Other times fraud. "Money goes missing from our accounts all the time" said one expat who runs a local, not offshore, company. "Our house is in a small gated community and 3 houses share a lovely swimming pool and gardens. We have a separate bank account set up for maintenance payments to look after the up keep of the communal area. Local council will even dip into that."
Long Terms Affects
As yet no insurer has been mentioned in the Panama Papers but with so much material yet to emerge it seems inevitable. Investment arms of some global insurers will be involved in investment advice that uses tax havens plus many insurers do operate offshore.
What comes next is any ones guess but one thing is for sure, The Panama Papers are causing a massive stir that could lead to a backlash, affecting global businesses and expatriates; particularly those in locations regarded as tax havens.
The serious message to any expatriate or business based in a tax haven is to ensure your tax affairs are in good order, in case you get caught up in the knee-jerk responses from formerly asleep-at-the-wheel tax authorities.