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A case of avoidance

08 April 2016

THOSE who complain about tax avoidance are often themselves complained about. Nobody wants to pay more tax than they must, it is said; and besides, it is not avoidance — merely tax efficiency. This argument might hold water for odd sums moved from one domestic account to another, or from one tax year to the next. But the revelations that are beginning to come out of Panama and the leaked Mossack Fonseca papers is avoidance pure and simple. Wealthy UK individuals and companies, by working through a shell company in Panama or one of the UK overseas territories, can operate in the UK and elsewhere without paying tax.

The reports of the contents of the leaked papers state carefully that it is not illegal to hold money overseas. And it is ultimately up to HMRC to decide whether it is legal for a UK national to benefit from transactions — we almost said done in their name, but this is the very opposite of how these secretive companies operate. Most regular taxpayers believe it should not be — indeed, they believed the Government’s assurances that it was going after those who used tax havens. The sheer scale of the overseas activity revealed in the Mossack Fonseca accounts has clearly swamped the HMRC staff, and no doubt explains why the department was so grateful when companies such as Amazon and Starbucks offered a derisive amount without too much arm-twisting. Far better to go for the low-hanging fruit, while directing public attention towards a few benefit-cheats.

White-collar crime is sometimes depicted as victimless. What that usually means is that payment for the crime is spread widely over many victims. In the case of tax avoidance, the victims are the medium- and low-paid workers who consequently bear a higher proportion of the country’s tax burden; and the poor and the sick, those in need of state help that is not available because the money is not there — it is in Panama, or the British Virgin Islands.

The rot goes deep. The Icelandic Prime Minister, Sigmundur Davíð Gunnlaugsson, who resigned on Tuesday, is just one of many heads of state, past and present, mentioned in the Mossack Fonseca papers. The temptation to squirrel away cash for the time when one no longer has access to state funds has been clearly too much for some. Is it any wonder, then, that political leaders who benefit from overseas holdings will move only slowly to reform them?

Beneath all this we detect a lack of compassion. The Government has failed (because it has not tried) to convince people that public spending is a good, not an evil, thing, when used to support those who cannot fully support themselves. Thus those asked to contribute to such spending through their taxes remain unconvinced, and so feel no compunction. Meanwhile, the electorate votes in a government that will turn a blind eye to it, unless flushed out by journalists. Panama does not tell us anything we did not know. But perhaps the scale of the scandal has shocked the country out of its inertia.

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