Most references to tax in the media of late have been about the “Paradise Papers”, the latest leak of data derived from 13.4 million documents from two offshore financial service providers, Appleby and Asiaciti Trust, and from the company registers of 19 offshore tax jurisdictions.
But is this just another of a long list of news stories, following the Panama Papers and LuxLeaks in recent years, and will anything change? Or is it just the new normal, that the public will continue to be outraged by tax havens but companies and wealthy individuals will continue to choose to invest in them?
Appleby’s own statement, which accused coverage of the leaks of being a “patchwork quilt of unrelated allegations with a clear political agenda and movement against offshore”, illustrated exactly the problem – that however secretive and potentially economically damaging aspects of the offshore tax industry may be, these systems operate within the law. They will only be concluded by international cooperation, mutual information-sharing and tough legislation. So what has progress has already been made on that front?
The OECD’s Common Reporting Standard (CRS), designed to tackle offshore tax evasion, has been in development since 2014 and adopted by the EU in 2016. If you have a bank account in any EU country, you’ll likely have received a letter in the past month asking that you declare the country in which you are resident for tax purposes and advising that information about your accounts as well as any tax paid on their assets will be shared with the taxation authorities in that country.
However there are limitations of the Common Reporting Standard – even had it been implemented at the time, it would not have resulted in disclosures of all the cases in the Paradise Papers. Many signatories in non-OECD countries will also receive less information than they are obliged to share with others. This ignores the very nature of offshore capital; a citizen of a resource-rich African state for example is far more likely to have untaxed assets held in a European bank than the other way around.
In the immediate aftermath of the Paradise papers the EU Finance Commissioner suggested a blacklist of global tax havens backed by sanctions, the introduction of transparency rules for tax intermediaries, bankers, and lawyers, and mandatory country-by-country reporting for profits as potential solutions to revenue lost via tax havens. The first of these was already underway at the time of the Paradise Papers leaks.
In the UK, there may be continuing political debate around how tax policy is formulated, scrutinised and monitored in British Overseas Territories in comparison to domestic policy. Regulators have been accused of having disproportionate levels of scrutiny (or lack of) considering the amounts invested in offshore. A wider potential angle is the impact on the territories themselves and the quasi-British citizens there; in the wake of hurricane IRMA for example, the BVI required an emergency £57m disaster relief payment and could need that much again to rebuild their infrastructure – yet the region was judged to be “too wealthy” for receipt of overseas aid.
Beyond politics and regulatory measures, the levels of continued public interest in this issue will perhaps lead individual citizens to consider the ways in which we all support tax behaviour that we call “aggressive” or “immoral” when we view it in others. It would be interesting to know the extent to which the investments, of, say the Queen, are reflected by the holdings of our own pensions funds and institutional capital.