In the coming days you will hear a lot about the difference between tax avoidance and tax evasion.
‘Avoidance’ is – whatever your views of its moral quality – lawful. ‘Evasion’ usually involves deception and is unlawful. You go, theoretically at least, to prison for offshore tax evasion. (‘Theoretically’ because HMRC tend not to bring prosecutions for this type of behaviour. As of November 2015 there had been only 11 prosecutions for offshore tax evasion in the last five years.)
In the coming days professional firms and others whose business it is to service or speak for those amongst the wealthy who prefer not to pay their taxes will be out in force in the newspapers and the media channels. Having assets in, or which have passed through, Panama is consistent with avoidance, they will tell you.
They – and, too, the government which will want to defend its record in this field – will suggest that the outrage you feel about what you read you are wrong to feel. And that people can perfectly lawfully have assets in Panama. And that you cannot conclude from the fact that name X or name Y has appeared in the Panama Papers that X or Y has done anything wrong.
And you won’t be able to contradict them.
You won’t know whether Mr X or Mrs Y have declared their tax liabilities on those assets in the UK. You have no entitlement to know anything about their UK tax affairs.
HMRC won’t tell you. HMRC is bound by a duty of confidentiality – and that duty is so very strict that if I was Mr X I could stand, smiling, on national news, next to HMRC’s chief executive and declare that I had paid every penny I owed and even if HMRC’s chief executive knew this an outrageous lie she would still not be able to contradict me.
Journalists won’t be able to tell you either. It is hard to have enough information to exclude every legitimate explanation for a fact pattern such that you can positively assert that Mrs Y is a tax evader. You will have had to tell Mrs Y in advance of what you planned to broadcast and Mrs Y’s lawyers will have issued very serious threats about what will happen if you broadcast – sometimes coupled with an almost comedically implausible explanation for the conduct. But the threats are serious and so you will not broadcast.
You may wonder who this wall of secrecy exists to protect. You may wonder whether the explanations of why it exists fairly balance public and private interests.
You will see something that feels very wrong. Yet no one will call it so. And because no one will call it wrong, no one will promise meaningful change. And this will make you angry.
It is true that tax avoidance is – whatever you think of its moral quality – legal. And it is true that people living in the UK might have assets in or that have passed through Panama for perfectly proper reasons. True, but not very likely.
And here’s why.
For the purposes of UK tax law, most tax havens are the same. There is no magic effective in UK tax terms that can only be performed in Panama. Moreover, Panama is not next door. It is not a British tax haven with the comforting familiarity such brings. It does not enjoy an especial reputation for trust and solidity.
People think of these things when they are choosing where to put their money. They are big disadvantages for Panama.
So there has to be a reason why you go there.
What Panama has offered – its USPs in the competitive world of tax havenry – is an especially strict form of secrecy, a type of opacity of ownership, and (if the reports of backdating are correct) a class of wealth management profession some of whom have especially compromised ethics.
You go to Panama, in short, because, despite its profound disadvantages, you value these things.
And the question you should be asking is, what is it about this Mr X or that Mrs Y and his or her financial affairs that causes them to prioritise secrecy or opacity or (if the reports are correct) ethically compromised professionals above all else?
Perhaps it is not because the behaviour is criminal: tax evasion or money laundering or public corruption. Perhaps it is not. But – and especially in the case of Panama – very possibly it is.
Jolyon Maugham QC (pictured) is a barrister practising from Devereux Chambers and has advised the Labour Party on its reform to the non-dom rules. He blogs at Waiting for Godot – Musings on Tax and can be found tweeting here.
