The PM in Panama – Why would you use a trust or offshore company?

Yet whilst stories that embarrass an all-star cast of the world’s elite may play well generally, is it also possible that certain politicians and broadcasters are choosing to sensationalise the matter rather than deal with the issues honestly and objectively?

Perhaps in a subconscious response to popular demand, there are those who continue to debate tax matters with language that conflates “tax avoidance” with tax evasion, and “secrecy” with fraud. Pillorying “the rich” is clearly a popular national pastime, perhaps because it is very easy for all of us to believe that it must be “someone else” who is not paying their “fair share”, especially if they are better off than us.

Unfortunately, and importantly, uncritical blame placing of this kind can have serious unintended consequences. The febrile atmosphere created by the media on the back of such reporting has already created an environment in which HMRC have recently been allowed to introduce draconian new tax laws, giving it carte blanche to collect the tax it says is due now and ask questions later.

Read more about tax avoidance and evasion:

That is to say, “taxpayers” are now treated as “guilty until proven innocent”, apparently both in the law and in the media. All well and good you may say, until we remember that “taxpayer” doesn’t refer only to the rich, the powerful and the dishonest. It is true that those who can afford professional advice can appeal to the Tax Tribunals and Courts against such an imposition, and thus ensure that ultimately they only pay the correct amount of tax and no more, but if you don’t have the funds to pay for advice, what then?

Such a state of affairs is unacceptable because it reverses one of the first principles of UK law. That is, the right to question your accuser. Every taxpayer should have the right to question the calculation of the taxes demanded of them, and the cost of raising those questions should not be a prohibitory factor. Anything else is an erosion of our rights as citizens in a democracy, which irresponsible reporting facilitates. So, back to the allegations of “tax avoidance” and “secrecy”, those emotive phrases that have encouraged us to sleep walk into allowing our laws to be bent backwards. What is really going on?

Whilst arranging ones affairs to benefit from lower rates of taxation may well be a key consideration for many investors and businesses, let’s be very clear; it is not necessarily something that should be discouraged, let alone presented to us as being indicative of fraudulent or furtive activity. Tax policy is used by all nations to encourage investment into areas that would not otherwise attract investment – for example, into an industry that is risky by nature but nevertheless important to the future growth or functioning of the economy. 

All countries use tax policy in this way. In fact, our own government actively uses tax policy to encourage foreign nationals to invest and do business in the UK; think the City of London’s Stock Exchange, or the remittance basis of taxation for non-domiciled UK residents. It also encourages its own nationals in this way: you may have an ISA or have invested in the Enterprise Investment Scheme? Investing in this type of (onshore) scheme helps taxpayer avoid tax, so do you disapprove?

If not, then consider: Is it really ok for the BBC to criticise Panama simply for having law firms, companies, trusts, and favourable rates of taxation? Or to criticise foreign investors for using them? And if it is, would it be equally ok for the USA’s Fox News to use similar tactics to discredit our government and any foreign national who invests in the UK, just because some of our investments attract tax reliefs and we have relatively favourable tax rates?

Read on to find out why the situation in Panama may not necessarily be considered a bad thing.

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