The Pandora Papers headlines include stories of high-profile individuals avoiding stamp duty land tax (SDLT) by buying property through an offshore company. However, these headlines rather miss the point. If you read to the end of the articles, they all admit that the individuals have done nothing illegal and yet they find themselves splashed across the media and portrayed in an unflattering light.
The Pandora Papers do raise some important issues, but not about tax evasion. SDLT is a tax which applies to the purchaser of real estate. Buying shares in a company is simply not within the ambit of SDLT. Therefore no SDLT is due and there is no tax evasion. It really is as simple as that. Where Parliament has decided that offshore arrangements do give an unfair tax advantage legislation can be implemented to remove that advantage. In fact, Parliament did exactly that almost ten years ago in relation to SDLT, deciding to introduce a new annual tax on enveloped dwellings (ATED) rather than create new SDLT charges. Calling out individuals for acting in a way Parliament clearly considers acceptable seems rather harsh.
The real issue thrown up by the Pandora Papers is that it is possible to use a company to buy UK assets and for the name of the ultimate owner to remain private. This privacy also creates the potential to use a company as a way of laundering dirty money.
The UK has made huge strides to counter both of these issues. We now have a legal requirement to identify any persons with significant control over UK companies. We also have extensive and well-established money laundering legislation with serious criminal penalties specifically designed to catch lawyers, accountants and others who help clients break the rules. This makes it very hard to use a UK company to protect a person’s privacy or with an intent to launder funds.
Of course, the Pandora Papers involve offshore companies not UK ones, but offshore centres are wise to these issues as well. The subject of public registers remains a lively debate, with many offshore centres now requiring the ultimate owner to be identified, but only to the local authorities, who only release the information under strict criteria. There are many reasons why some require their privacy, and for the wealthy, personal security is often the primary concern.
As for money laundering, reputable offshore centres have criteria just as strict, if not stricter, than the UK’s. This is not to say that offshore companies are not used for tax evasion or other illegal activities – some definitely are - but the truth is that it has become far more difficult to use offshore companies to hide anything from the UK authorities.