Another week, another leak! This time 13.4 million confidential financial documents dubbed the Paradise Papers from the Bermuda-based law firm Appleby, which also has offices in the British Virgin Islands, the Isle of Man and Guernsey.
What do these island economies all have in common? Well to some they are all Offshore Financial Centres, but to others they are all Tax Havens.
With its connotations of financial secrecy and tax avoidance, “Tax Haven” is not always an appropriate term for Offshore Financial Centres, many of which have no statutory banking secrecy, and most of which have adopted tax information exchange protocols to allow foreign countries to investigate suspected tax evasion.
Indeed, in this day and age of Automatic Exchange of Information (“AEoI”), Common Reporting Standards (“CRS”) and the Foreign Account Tax Compliance Act (“FATCA”), there are few places to hide, and the vast majority of these so-called Tax Havens are highly regulated and highly transparent.
So are the Paradise Papers all a bit of a storm in a teacup? Absolutely, but they make for good headlines, even though journalists have been quick to acknowledge the absence of any wrongdoing or illegality.
How is offshore tax avoidance any different from onshore tax avoidance? Everyday people legally avoid tax in South Africa by investing in Tax Free Savings Accounts or contributing to registered pension funds. Is this also morally questionable behaviour?
I feel that the biggest critics of Offshore Financial Centres are either those who don’t fully understand them, those who don’t use them and those who can’t use them.
I read a succinct and well-articulated opinion piece in today’s Business Report written by Ernest Mazansky, the Director of Tax at Werksmans Attorneys, which you can find here: Tax havens shrouded in secrecy have become an outdated concept