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The revelations in the Panama papers turned a huge spotlight on the world of tax havens. Whilst things have calmed down a bit in the last couple of weeks, a further round of apoplectic rage in the media can be anticipated on 9th May. The International Consortium of Investigative Journalists (ICIJ) who released the previous batch of Mossack Fonseca papers has announced this as the date that it will release a searchable database with information on more than 200,000 offshore entities that are part of the Panama Papers investigation, a far more extensive disclosure than that to date.
In the calm before the storm, it would seem sensible to take stock of where we are as this has very significant implications for the real estate investment management industry. The industry has been a prolific user of tax planning in cross-border transactions and has also already been the subject of extensive revelations regarding money laundering.
The focus of attention on the tax affairs of the Prime Minister has been a distraction from the real issues, but also raises some interesting points for the investment management industry. We have never made a secret of the fact that we are no big fans of David Cameron or the current government. However, we do feel that he has been unfairly pilloried over his own personal tax affairs. The initial press coverage implied that his “offshore investment” was in some form of family trust to designed to avoid tax. As the detail unfolded, it became apparent that he in fact held a small investment in an offshore fund managed by the company in which his father had been a director. The fund was for investors in non UK securities. After the changes in the EU UCITS rules were adopted in 2009, the fund was re-domiciled in Ireland in 2010 and became a UCITS.
We were told that it was for UK tax purposes registered with HMRC as an Offshore Reporting Fund. This means that it files returns with HMRC every year and UK recipients pay tax. Perhaps surprisingly in light of the furore regarding offshore secrecy, this is very easy to check. HMRC publishes the list of Offshore Reporting Funds - anyone can download the spreadsheet. Smith & Williamson Blairmore Global Equity Fund Class B GBP is indeed there had journalists bothered to look. The press comments regardng the fund vehicle itself relied on a number of assumptions regarding UK corporation tax that were simply incorrect. Another case of journalists being confident but wrong. In all the distraction as to whether or not this was tax evasion, tax avoidance or in fact nothing at all, what was not addressed was why this could not be operated as an onshore fund. This is discussed in more detail later in this article.
It is not the purpose of this article to consider the morality or otherwise of tax planning and tax avoidance. Views on this differ considerably and as a result vague notions of morality are a hopelessly inefficient way of collecting tax revenues. Effective gathering of the funds that countries need to pay for services relies on discovering and deterring tax evasion and on effective legislation to reduce the scope for tax avoidance. In the media frenzy, very little attention has been given to the steps currently being taken internationally to tackle both tax avoidance and money laundering. Very significant changes in both are underway, the full effect of which will be felt in the next few years. The steps being taken to address tax avoidance by companies and money laundering are addressed in the rest of this article.