Panama papers - who needs to know?

16 June 2016

The Panama papers scandal has brought into focus the role that offshore centres have played in meeting the need for privacy and secrecy, and which is which perhaps depends on how you look at it. It is easy to call for transparency in the name of fairness when the finger is pointed at multinational companies, who seem to be considered fair game, but following the release of over 11.5 million documents, the debate has moved on to consider how tax havens might facilitate fraud or enable corruption, and whether individuals should be subject to a greater degree of public scrutiny as far as their tax affairs are concerned.

The transparency agenda

The last few years have focussed on the tax strategies of multinationals. Back in 2014, another scandal with a catchy alliteration, Luxleaks, drew attention to the tax planning strategies of global groups. This came midway through the OECD BEPS project and was precisely what the BEPS Action Plan sought to address. With the publication of the final deliverables in October 2015, the OECD was clear to state that improving transparency was key. However, there are different views on what information should be shared and with whom.

Need to know

The OECD went very clearly for a limited degree of data sharing, between tax authorities only. One can imagine that they were keen to make sure consensus was reached, as participants in the BEPS project come from a broad group with very different views of what would be considered normal and acceptable to those they represent. The EU Commission quickly took this a step further; announcing that key data should be published on a company’s website for five years. This came as no surprise in Europe and is consistent with both the public mood and the political direction of travel, but the significance of this departure from the BEPS recommendation should not be underestimated.

Nowhere to hide

The Panama papers leaks have sparked new calls in the UK for public access to more information, such as the ownership of companies, properties and the beneficiaries of trusts. This agenda is driven by the belief that greater transparency improves compliance, and ultimately this will drive out fraud and corruption. The UK has been direct in naming the US as a major problem in this area, but the US is in fact coming from a very different view of what is normal. It has not experienced the same public outrage at multinational tax avoidance, with the taxation of companies being looked at in a completely different way. Moreover, in the US there is little demand for increased public disclosure and, as such, little political pressure.

Exchange of information

In the meantime, there is no doubt that exchange of information between countries will increase. The public may need to trust, at least for now, that there are fewer secrets, being mindful that this debate may only end when every person’s tax returns are a matter of public record .

If you would like to discuss these issues in more detail, please contact Rebecca Reading or your usual RSM adviser.

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