The Panama Papers – A new old story?

It is hard to ignore the revelations in the last 48 hours of alleged tax evasion by the rich and powerful following the leak of a huge volume of data from Panamanian legal and trust services provider Mossack Fonseca. Indeed our own Prime Minister, David Cameron faced questions about his father’s historic financial links to the Central American country.

However is this really new news? In short – No!

The UK and several other countries have in recent years been offering tax amnesties providing incentives to residents of their countries that have undisclosed income and gains. The target of those tax authorities has been undisclosed assets held in offshore jurisdictions, predominately the traditional tax havens. In our experience the underlying assets have often been through trusts / foundations and other similar structures with the funds themselves held in other jurisdictions such as Monaco and Switzerland. It is fair to say that whilst the UK tax receipts from those amnesties have not reached the dizzy levels that HM Revenue & Customs (HMRC) forecast it has still been good business for the Exchequer.

At the end of 2015 the UK’s favoured disclosure regime, the Liechtenstein Disclosure Facility (LDF) closed and its replacement is expected later this month, albeit HMRC has made it clear son of LDF will not have the same very favourable terms.

One question that has been subject to some debate among Tax Investigations experts is whether there is much left in offshore jurisdictions for the tax authorities to pursue. The release of the data from Mossack Fonseca suggests there is plenty for the tax authorities across the globe to ask questions about, especially as this is data from just one organisation and there are many thousands of such organisations across the globe.

Of course not every trust / foundation or structure will involve tax evasion – we have seen on several occasions such structures being used to protect commercially sensitive information or family anonymity. Unfortunately though in our experience HMRC is very likely to ask questions and will adopt the presumption that the underlying motive is tax evasion and it is for the client subject to the investigation to demonstrate there isn’t, if they are going to persuade HMRC to leave them alone. Furthermore in our experience it is distinctly possible in some instances that two or more tax authorities will collaborate and ask questions either concurrently or strategically share information to facilitate a subsequent investigation.

The best advice for any client or services provider with concerns in such situations is to talk to someone who can make sense of the position and provide practical advice. To do so call our experts on 0207 063 4639 or 0161 831 1312.

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