Recently a leak of more than 11.5 million individual files, from the world’s fourth biggest offshore law firm, Mossack Fonseca, was released from an anonymous source. Handed to the Süddeutsche Zeitung, the release highlights the numerous ways in which the world’s super rich can exploit secretive offshore tax regimes, and it involves no less than 12 national leaders.
Of course the extent to which each person was involved in such dubious tax circumstances varies considerably. One notable example, involving an amount of at least $2bn according to The Guardian, leads directly back to Vladimir Putin himself – some of that money even finding its way to his own daughter’s wedding venue. The scandal also included the now former Primer Minister of Iceland, Sigmundur Davíð Gunnlaugsson, who, although small fry in comparison with the Russian President, has been effectively forced out of office in light of his involvement in the revelations.
Perhaps this revelation will stir more people to take an interest, and maybe – just maybe – we’ll see some meaningful change in the future.
Such shady tax dealings are, of course, not limited to foreign countries. Here in the UK it was revealed that Prime Minister David Cameron’s late father, Ian, had long held an offshore investment fund which never paid tax the UK, despite it being financially beneficial to the Cameron family.
I am personally not at all surprised by the outrage this leak has brought to bear. How can it be just that the super rich can hide their money in far away tax havens (often UK territories) without consequence, while you or me would be hounded by HMRC and its army of bailiffs if we didn’t cough up what we owe? Perhaps it is inevitable in a world that is increasingly market driven - truthfully I couldn’t disagree more strongly. It would benefit everyone if we all paid our fair share of tax, right from the lowest-paid all the way up to the multi-billionaire. Public services would benefit, and more money could be ploughed into things like climate change, which will inevitably affect all of us in one way or another, rich or poor.
It hinges on whether we can get people into office who will make this change. A Panamanian recently told me that she felt her country was now just a conduit for rich people’s financial dealings – and this is what must change. Perhaps this revelation will stir more people to take an interest, and maybe – just maybe – we’ll see some meaningful change in the future.
The inevitable populist clamour for ‘real change’ that comes whenever there is a supposed watershed moment should be treated with caution. The ‘Panama Papers’ were certainly elucidatory, albeit not wholly surprising, but we ought to hesitate before expecting, or even demanding, wholesale reform.
The reason for such hesitancy is that, in truth, we don’t know what is it that we want, short of the airy notion of ‘an end to tax evasion’. That an end to tax evasion is desirable is self-evident; if governments were able to flick a switch and recover the billions supposedly evaded, they would. Despite the rhetoric of austerity, politicians of all colours love nothing more than the ability to spend.
The problem, then, is that tax evasion (and avoidance particularly) cannot be stopped just by passing a new law. Tax avoidance is legal; the loopholes that exist within tax codes are there for specific purposes – to help a certain industry, for instance. The use of a tax-free government ISA is, technically, tax avoidance. Wailing about the unjustness of the ‘system’ does not help reform the complex tax laws which make avoidance possible.
Wailing about the unjustness of the ‘system’ does not help reform the complex tax laws which make avoidance possible.
We have to accept that, as part of the price paid for living under the rule of law, people will make use of the law to their advantage. The tax authorities cannot operate based on what is ‘morally’ right. Laws apply equally to everyone, and tax laws cannot be written only to apply to certain individuals. A law designed for sensible purposes may be utilised by someone to lower their tax bill – all within the letter of the law.
The tragedy is that as public debate has descended to infantile levels – demanding MPs publish their tax returns – the most pernicious problems are being ignored. David Cameron’s family is pilloried for having invested in a trust which was domiciled in Panama (despite the PM having paid UK taxes on his profits), yet the silence of the media and most politicians is deafening over the billions expropriated by international criminals and dictators which are being laundered in places like Panama.
Aggressive corruption that proceeds with impunity is a real geopolitical risk which destabilises states and inhibits their economic development. Tax evasion is illegal and must be pursued by tax authorities. This is where the energy of governments should be directed, rather than the moral grandstanding that runs a serious risk of appearing to simply be anti-wealth. If offered the chance to reduce their tax bill through legal means, I wonder how many people would do so. Very many, I guess.
Tax havens have become the attention of the media recently following the Panama Papers, a leak of nearly 12 million files from the database of the Panama-based business Mossack Fonesca, the fourth largest offshore law firm in the world. Detailing who is using their worldwide operations in a number of a tax havens, from Switzerland to the Bahamas and the Seychelles, this leak has given us a peek into how the rich can avoid paying taxes.
When the news of this came out I wasn’t too surprised. The fact that the most affluent and powerful people in the world are using a number of intricate, shady strategies in order to retain and hide this wealth such as through the use of tax havens should not be too much of a shock. It is just another example of plain old greed and if there are ways to keep hold of their money, then of course some people will be willing to do so. Perhaps it is the magnitude of this leak, or the fact that the people we should trust like are complicit in this morally wrong strategy, but now this is no longer an elephant in the room, with millions of documents now in the open.
It is just another example of plain old greed and if there are ways to keep hold of their money, then of course some people will be willing to do so.
Already it has claimed at least one victim so far, with the now former Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson resigning following the revelations relating to his wife’s financial affairs, but also has turned the spotlight onto our very own Prime Minister David Cameron.
While originally thought that this was just his late father’s company, we later found out that prior to becoming Prime Minister, Cameron actually had a stake in this offshore firm. The fact that the Government expects us to pay our taxes, when the leader of our country tried avoiding this, is detestable at worst and stupidly hypocritical at best. Yes, David Cameron has not broken the law and has indeed introduced a few rules relating to tax avoidance, but he has broken many people’s trust in him by contradicting himself, with demonstrations now appearing in London calling on him to follow his Icelandic counterpart suit. The only way he can recover from this is with stricter, more extensive regulation of these tax havens, ensuring that this morally wrong practice of tax avoidance is made more difficult and transparent, if not illegal. It’s not like those involved in this practice are going to just give us the money out of the kindness of their hearts after being found out. There needs to be real change.