Paradise Papers: 50 Shades of Grey



Wed, 08 Nov 2017 - 09:40 GMT


Wed, 08 Nov 2017 - 09:40 GMT

Two of the known figures accused in the Paradise papers, Britain's Queen Elizabeth II and U.S. billionaire tycoon, Trump's commerce secretary, Wilbur Ross. REUTERS

Two of the known figures accused in the Paradise papers, Britain's Queen Elizabeth II and U.S. billionaire tycoon, Trump's commerce secretary, Wilbur Ross. REUTERS

CAIRO – 8 November 2017: The world has been gripped in the past few days by the recent disclosure of influential figures and international organizations using offshore tax havens to save millions of pounds, dollars, rupees: you name it. Exposures such as this are becoming more common in today’s world, and most people were not taken aback by the revelations in the recent so-called Paradise Papers; well, except for those regarding the Queen, but let’s be honest Her Majesty has probably never seen the new polymer’s she shares with Churchill and Jane Austin.

The Paradise Papers refer to a major leak of documents to the German newspaper Süddeutsche Zeitung, the newspaper which also received the Panama Papers leak last year. Süddeutsche Zeitung shared these documents with the International Consortium of Investigative Journalists.

Some 96 media partners were involved in the behind-closed doors investigation; a total of 381 journalists from 67 countries have been analysing the material. Around 13.4 million files were leaked; 6.8 million were related to a law firm and corporate services provider that operated under the name Appleby. The leaked Appleby database concerns customers from 1993 to 2014, and contains the names of more than 120,000 people and companies.

Some of the world’s biggest names and most powerful multinationals feature in the leak: from the Queen to Bono, from Apple to Nike.

The files attract attention to the myriad ways in which companies and individuals can avoid tax by using artificial structures and misleading mechanisms. If used correctly, these schemes avoid tax traps put in place by governments and are within the law, however many people and corporations appear to have overstepped the mark in their greed.

Source: AFP

Money flows into off-shore tax havens from every corner of the earth. They attract those with the financial excess to access them and with the moral capacity to save their conscience the grief. Experts predict somewhere between $300-600 billion was lost globally last year in tax income because of off-shore tax havens. But how fair is this system?

When discussing issues of off-shore tax havens, there is a major distinction between tax-avoidance and tax evasion. “Tax evasion” is taking steps to avoid paying tax outside the law, whereas “tax avoidance” is taking steps to avoid paying tax by using loopholes in the law – this is not an illegal practice, but an incredibly broad grey area. Although there may be cases in which they overlap, these distinctions are generally set in stone.

There are two important angles to look at here; the legal angle and the moral angle. Tax evasion is illegal in all circumstances. If people violate the law of their government in avoiding tax, regardless of their status and existence (human being or corporation) they are equal under the law. Tax avoidance takes advantages of legal loopholes and is a question of morality. The only thing broken through using the tax avoidance scheme is the association with one’s fellow citizen, who pays their tax in full and contributes to the society they live in.

David Mitchell, a British comedian, once again displayed his incredible and comic intellect during an episode of “The Last Leg” in 2015, and commented superbly on the issue of tax avoidance.

“Would you pay 1 percent tax if you could get away with it?” Adam Hills asked. “Well I certainly wouldn’t say I would,” Mitchell replied. And this touches upon an important issue.

Most people proudly declare that they would never try to avoid tax, me with them, and rightly so. But most people don’t have enough money for this to be a possibility. Once you cross the threshold of this becoming a possibility, it is likely you have aides managing your wealth.

Lewis Hamilton, four time and 2017 F1 World Champion, is worth an estimated $250 million. AFP

If you were Lewis Hamilton and your financial advisor informed you it was possible to save £3.3 million on the purchase of your private jet, I am sure you would consider it.

Now I would like to believe most people would turn this down, I would like to believe that I would turn this down, but most of us can’t comprehend how extortionate sums of money can taint the mind.

Although this argument doesn’t include those individuals and corporations who actively seek loopholes to avoid paying their tax bills, it still holds true in many cases. Advice is given, and many people chose to keep their taxable income as small as possible.

However, tax avoidance is a very broad grey area in the taxation realm. On one hand, making a pension contribution is tax avoidance since this income is not taxed, whereas on the other hand Lewis Hamilton’s avoidance of tax on his £16.5 million jet, which spanned multiple companies and continents, is very shady.

There is a scale of morality; a trade-off between good and greed, between a clean conscience and a second Aston Martin.

The government is stuck in a rut. On the one hand there are the government’s legal experts working to close tax loopholes and increase tax revenue, and on the other hand there are private tax experts devising mischievous artificial structure to bypass these laws. These two sides are caught in a battle for supremacy as they attempt to overcome one another.

Except the private tax experts are at an advantage for two reasons. Firstly, they attract a wider group of experts and arguably more skilled experts owing to the lucrative financial benefits. Holes will always be found in complex tax law and the world’s best will flood in to make their millions. Secondly, governments don’t have the same freedom as tax experts. Governments must maintain the balance between enforcing the rich to pay the necessary tax, while still remaining attractive; a fine line that nobody knows where, or how to draw.

It seems rather fitting, although uncomfortable, that the Crown would be exposed as participating in these off-shore tax avoidance schemes. A large number of tax havens fall under the Queens realm – British Overseas Territories and Crown Dependencies – which has led to increased pressure on the government to close loopholes at home, and exert pressure over those abroad. This scandal has the potential to be disastrous for the Crown.

In the UK, there are three sins you can’t commit: insulting the monarchy, insulting the BBC, and most importantly, insulting the NHS. In this case we have seen the former, contributing to the deteriorating situation of the latter.

Lord Ashcroft, billionaire former deputy chairman of the Conservative Party, was also caught up in the scandal. AFP

The British people care deeply about public services (did I mention the NHS?). Yet in previous years they have been bled dry by austerity measures following the 2008 economic crash. The NHS is underfunded and under intense pressure as it struggles to support those who need healthcare.

This is why my biggest gripe with those caught up in legal, yet highly immoral tax avoidance schemes is not simply the act of participating, but the knock-on effect. The UK already has high taxation levels and is desperately struggling with under-funded public services. Yet, if the highest earners paid their fair share, normal people would pay less and society as a whole could, and would improve.

Tax avoidance goes against the spirit of the law, not the letter. Once you cross that fine line you enter the realm of evasion and the story changes. Many people would argue that unless no law has been broken there is no problem. But this is just not true. Being part of a society does not just mean that you have a duty to the taxman, you have a duty to your fellow citizens. There are countless unwritten laws that govern society, and which everyone abides by to make life better for the whole.

Would you jump to the front of a queue, or stand to the left on an escalator? No you wouldn’t. This is not the law, but common courtesy.

This comparison is not trivial; it is surprisingly relevant. Adhering to one’s tax obligations is not just the law, but a duty one must fulfill as part of a society and the citizen of a state.


Joseph Colonna



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