The Panama Papers have caused a great deal of reputational damage for many individuals linked to offshore accounts and financial centres, but will there be any practical repercussions for those involved?
With 11 million documents leaked detailing a network of offshore companies set up in tax havens, the Panama Papers leak is unprecedented. However, the papers may not necessarily lead to prosecutions or investigation by HMRC. In this post we look at some of the main concerns of those who may hold offshore accounts and provide answers and solutions to some of the most important issues facing those affected by the Panama Papers leak.
Is tax avoidance illegal?
Holding an offshore trust or bank account or trust is not an offence under UK law. Genuine tax-planning activities are perfectly legal even where offshore structures are used.
However, holding an offshore account with the sole purpose of avoiding UK tax liabilities is deemed to be tax evasion, which attracts harsh penalties. Furthermore, holding offshore or overseas account does not necessarily equate to tax evasion, it is possible to meet your UK tax obligations whilst holding these kinds of financial constructs.
In recent years, there have been a number of “settlement windows” which encourage UK taxpayer to disclose offshore assets and become compliant with the law without facing criminal charges. It is possible that many of those named in the Pananma Papers have settled their debts with HMRC as a result of these arrangements.
What has become more of an issue in recent years is tax avoidance, and public backlash at circumstances where the law is used for purposes that it was not intended to be used for, enabling tax avoidance. Those seeking to use legitimate tax avoidance measures must understand that the reputational damage that could be caused is also worth taking into account.
Is tax avoidance ever acceptable?
This is a difficult question to answer, as what kind of tax planning behaviour or scheme HMRC will challenge is a subjective issue, with different inspectors taking different approaches. The policy and pursuit of cases in this area are continually developing which means that whilst a tax adviser may advise you that HMRC will not question your tax planning, this may not be the case a couple of years later.
How much of my tax information can become public knowledge?
Most of those detailed on the Panama list are unlikely to be splashed across national newspapers, but you may be concerned about how much of your information could be circulated in the public domain. Whilst HMRC may not specifically investigate your case, the potential for reputational damage and being labelled a ‘tax avoider’ may be of concern to you. There is no ‘right to privacy’ in UK law and as a result, if your details end up in the public domain, there is no civil remedy for breaching this right. However, Article 8 of the European Convention on Human Rights (ECHR) provides the right to respect for a private life, and as a result, there is an implied protection from misuse of private information. However, individuals of high authority are expected to adhere to a higher level of transparency, especially when their private affairs may be of relevance to the public interest. For example, the public interest in MP’s expenses. Allegations of tax avoidance may cause the public to lose confidence in certain individuals and as a result, private financial information may become relevant to the public interest and can be disclosed.
Will HMRC obtain the Panama Papers?
HMRC have not yet received the Panama Papers, but it is highly likely it holds a detailed database of offshore account information. Much of this information has been voluntarily provided by taxpayers.
The Connect computer system, used by HMRC has the capacity to identify taxpayers and advisers that may be worth investigation or looking at more closely. HMRC in light for the Panama Papers is like to be looking at the data it currently holds in order to be more pro-active in tackling tax evasion.
What information could be obtained by HMRC?
The information disclosed by the Panama Papers includes information about the number of entities involved in offshore activities, and thus it can be assumed that client lists including the names of beneficiaries the holders of shares may be disclosed. The ICIJ has been working on this investigation on a geographical basis, so it is likely that HMRC will receive the relevant data it requires in a searchable format, along with supporting documentation. The data provided may date back as far as the 1970’s.
In addition, further data may come to the forefront as the investigation continues. For example, if another tax authority such as the US Internal Revenue Service (IRS) begins a criminal investigation, it is likely the papers involved in the investigation will be distributed to other jurisdictions. Interestingly as the firm involved in the Panama Papers leave claim to have done nothing wrong, they may wish to voluntarily disclose more information and documentation, including details of financial intermediaries.
If you are concerned about a tax investigation, contact us today to discuss your options. There may be both civil and criminal consequences for not complying with HMRC investigations, and it is important that your discuss such investigations with a specialist tax investigations lawyer.
What will HMRC do with the data?
Working out exactly how HMRC will use the data it receives is something that is of most concern to our clients. The government announced a multi-agency task force including HMRC staff, the Financial Conduct Authority (FCA), the Serious Fraud Office (SFO) and the National Crime Agency (NCA). Using all of these agencies makes it clear that the powers of the task force will be extensive and the investigations will seek to uncover not only tax evasion but also other financial crimes such as bribery, money laundering and fraud. The investigations may also allow the FCA to check up on the conduct of the service providers the agency regulates.
However, how exactly HMRC will use the data provided will greatly depend on the clients compliance history. What is important for those involved in the Panama papers leak to consider is not their intentions when setting up their offshore structure, but what HMRC may think their intentions were given the information that HMRC may now hold.
Your tax adviser should be aware of exactly what information HMRC will hold on your offshore structure, and this is an advantage. This allows your legal representatives and tax adviser to get an accurate picture of what HMRC may be concerned with in terms of your
One small advantage of information used by HMRC being in the public domain is that the advisers know what the authorities have. The client should understand that there are many other potential sources of information and should not proceed on the basis that only the Panama data needs to be disclosed.
Remember, it is not just about tax. The involvement of high-profile people will generate longer-term interest than the corporate scandals. HMRC will be forced to take action and we should expect it to be based on profile or potential yield levels. It would be unsurprising if the Panama list was to form the basis of another COP9 project where letters are issued to everyone on the list ‘en masse’.
How can I protect my reputation following the Panama Papers leak?
Legitimate reasons for using offshore structures are often misunderstood or ignored by the general public and the media. Often, those who use offshore structures as part of legitimate tax planning are tarred with the same brush as those using such structures for illegitimate purposes.
This circumstance is not helped when scandals such as the Panama Papers leak are associated with bribery, corruption, organized crime and money laundering. In short, being associated with offshore tax planning under these circumstances can be very damaging to reputation.
Even where you may feel that your affairs are of no interest to the media, you may need to limit media exposure and even step down from certain charity or education posts you hold temporarily. This will limit the scrutiny you may face from the media and avoid any accusations of ‘hypocrisy’.
If you have made previous statements of wealth and omitted offshore assets, such as part of divorce proceedings, or in the course of business, you should be aware that these proceedings may resurface. Any written off debts may be investigated and can even be reopened under certain circumstances. If this occurs, those involved in deliberately failing to disclose corporate assets may face criminal sanctions and the debts may be reinstated.
Can I make a claim against my tax adviser?
If a secret structure advised and implemented by your tax adviser is challenged by HMRC and thus found to be ineffective tax planning, you may be able to make a legal challenge against your tax adviser. You may also consider ‘whistleblowing’ if you have reason to believe that your adviser or their firm is facilitating tax evasion as you could become an inadvertent accomplice in tax evasion. There are strict time limits for making such a claim and you should contact us as soon as possible if you wish to do so.
What should I do if I have had a previous COP9 enquiry and failed to disclose offshore interests?
If you have previously faced a COP9 enquiry and failed to disclose a Panama interest, it is likely that you will face either a civil or criminal fraud investigation. In 2012, Michael Shanly was successfully prosecuted for failing to disclose a Swiss bank account, and this has set a precedent for criminal action against those who fail to disclose such interests in a COP9.
Those who choose to use voluntary disclosure facilities such as the Liechtenstein disclosure facility (LDF), but failed to disclose all offshore assets may be subject to fast-track prosecution. However, all of those who have failed to make such disclosures may face quick and easy ‘document based’ prosecution under the Fraud Act 2006. So long as the Panama documents are provided in an evidentially sound manner and are admissible as evidence in the UK courts, there is a high chance of such prosecution. As a result, if you are facing these circumstances it is vital that you contact our specialist team right away. Lewis Nedas can provide you with specialist advice and have invaluable experience in handling such investigations and prosecutions.
I have previously failed to disclose offshore interests, how will I be affected?
If you have previously had an inquiry into your tax return, or the return of a company or trust and you have failed to disclose offshore assets it is possible to make a pre-emptive disclosure to HMRC. Your position will, however, depend on whether the enquiry into your affairs was concluded with a signed statement of assets and liabilities and a certificate of full disclosure.
If you are under enquiry at present, you should use this opportunity to regularise your position – this will, however, depend on the stage of the enquiry and what information and statements you have given to date.
Without a doubt, the Panama Pares will continue to generate great interest from the public, the media, and government agencies. With facilitating and enabling offences coming into force from 2017, it is vital that is you have been involved in an offshore investigation or believe you may be at risk, that you seek specialist legal advice as soon as possible.
Contact our Tax Prosecution Defence Solicitors in Central London
With offices in Camden and Fleet Street, we represent and advise businesses in Central London, West London, North London and across the UK.
For further information or to speak to our solicitors please telephone us on 020 7387 2032 , complete our online enquiry form or contact Jeffrey Lewis, Jeremy Ornstin or Siobhain Egan.
