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Another data leak – more outrage at the way the more fortunate amongst us seek to structure their tax affairs. This time it’s regarding the use of accounts set up in Panama.

Understandably, focus in the media has been on the specific individual or corporate taxpayers named on the leaked lists, but who are really responsible for such behaviour?

In crude terms there are four parties to any offshore tax planning scheme: the tax payers themselves, the government that allows this to happen on their watch, the “professionals” (lawyers, bankers, and accountants) that devise the schemes, and the intermediaries that market them (sometimes these last two are one and the same – technically called “promoters”).

It’s true that some individuals and some corporations enter into so called tax planning schemes knowing how the schemes are set up, see no boundaries to what can be done with them, and understand what this means. But the vast majority of individuals and corporations don’t. They employ “professionals” to manage their business and tax affairs because they don’t have either the time or necessary skillsets to do this themselves and secondly, the professionals come with a qualification and experience that can be trusted (or so you would hope!).

Anyone that has been exposed to the tax system knows just how ridiculously complicated it is, and also how quickly it changes. Within the boundaries of what is legal, taxpayers are allowed to arrange their affairs in such a way that they pay only that tax correctly due of them. But, faced with such complexities, where do the boundaries lie? The vast majority of taxpayers know there’s a line that can’t be crossed, but where is it? As with all other legislation they know there’s a consequence to crossing this line and want to stay on the right side of it, but how do they do this?

One of the roles of professionals is to guide their clients through the suffocating maze of tax legislation and make sure that they stay on the right side of the line. Clients trust professionals. They have a qualification; they have experience; they know what’s best for you. In the same way that people trust a surgeon if they propose a particular operation, so people trust professionals if they propose a particular way of arranging their tax affairs.

Most right minded people agree that tax avoidance is legitimate but tax evasion wrong. But, how to clamp down seriously on tax evasion, deliberate or otherwise?

The best way, clearly, would be to simplify the tax system to such an extent that everyone could understand it. But that won’t happen – every year, for reasons only known to politicians, it gets more and more complex. So if we really want to stop the use of tax planning schemes and make the landscape fairer for all, who should be targeted? The governments that allow the schemes to operate on their watch, the individuals and corporations that consume the product, or those that create and market the product in the first place?

 

 

 

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