Not surprisingly, the Panama leaks have created a huge media frenzy and jurisdictions seem to falling over themselves to show how tough they can be in responding. In the UK, HMRC has published a statement saying there are no safe havens and have written to the Guardian asking for a copy of the leaked data. Given the criticism over the department’s apparent failure to make effective use of the HSBC data, HMRC’s speed of response isn’t unexpected.
But before the story engulfs us, there should be at least a small pause for thought…
I’m not naïve. There will be individuals caught up in this who have undoubtedly used the secrecy of Panama to hide money and evade UK taxes. I’ve no sympathy for them and they deserve all that is coming to them. Yet even here I would not expect a whole raft of prosecutions. The rules about admissibility of evidence are complex, and it can’t be taken for granted that a court would accept evidence based on what appears to be stolen information. So it may well be that some cases will be settled on a civil basis, with interest and penalties - but no prosecution.
However there will be cases where offshore structures have been used in tax avoidance. In many of these, HMRC will already be aware of the avoidance scheme and will already be challenging it. For example, the leaked documents include reference to ‘bearer shares’ which were used for a particular form of capital gains tax planning some years ago. Whatever one’s view of the planning (it was closed down in 2005) it would be wrong to assume that it inevitably involves tax evasion.
This then links to another reason to draw breath. The leaked data covers a period of 40 years – indeed there seems to have been a significant decline in the number of individuals and companies involved over the last 10 years or so: the peak seems to have been around 2000-2005. HMRC is unable to assess undeclared liabilities which date back more than 20 years - even in cases of fraud - and therefore even if tax has been evaded it may not necessarily be collectable. The rules for criminal prosecution are different, and there may be more scope to bring earlier years into play if a criminal route is appropriate.
Finally it’s worth pointing out that there are some legitimate reasons why an individual might want to put their wealth into an offshore structure. Those cases will be in the minority, perhaps a small minority, but cannot be entirely discounted.
The existence of all of this data might be regarded as a bonanza for HMRC. In some ways it is, but it also gives them a huge headache. How are they actually going to deal with it? Prosecution is an extremely difficult, costly and time consuming exercise and it’s hard to believe that HMRC could ever prosecute more than a handful of those who appear to be involved – a case perhaps of ‘hanging an admiral to encourage the others!' So it would not be a surprise to find most cases being dealt with under civil procedures, particularly where people come forward voluntarily.
If you would like to discuss any of these points further, please contact Andrew Hubbard or your usual RSM contact.