“I see a security versus secrecy trade-off for high-net-worth individuals,” said George Bull, senior tax partner at audit and tax advisory firm RSM.
“Do they live with high levels of exposure but remain in well-regulated jurisdictions or do they go elsewhere and risk less regulation and perhaps greater financial exposure in the name of maintaining secrecy?”
Data dump
Bull’s comments came in the wake of what has been dubbed the biggest financial data leak in history. The Panama Papers have caused mounting pressure on the controversial tax arrangements of the world’s leading financial institutions and wealthy individuals.
The leak led to Britain, Germany, France, Italy and Spain signing a deal on 15 April setting up a beneficial ownership register to automatically share information on the ultimate owners of companies.
Just days earlier, UK prime minister David Cameron announced all of Britain’s crown dependencies and overseas territories had committed to providing beneficial ownership information to UK tax and law enforcement authorities. He also announced plans to introduce a new tax evasion law, which will make companies criminally liable for employees who aid tax evasion.
Transparency risks
Bull told International Adviser the measures may force offshore jurisdictions to give up their tax status or risk imposed sanctions. He said the transparency trade-off now facing wealthy individuals could see some move away from offshore centres that comply with the disclosure agreements, such as Jersey.
“Wealthy individuals use tax havens not just as a low tax or no tax jurisdiction but also for reasons of confidentiality. There is a risk that changes to disclosure rules may drive HNWIs away from tax havens that are compliant when it comes to information exchange into other countries which may not have the same legal and financial protections that they do now,” he said.
Offshore defence
Although described by the International Consortium of Investigative Journalists as “the biggest blow the offshore world has ever taken”, a number of experts have defended the industry against the Panama Papers furore, calling for a need to clarify the difference between tax planning and tax evasion.
David Pugh, director of the Singapore-based advisory firm The Fry Group, said: “Expats who are reporting in the right way have nothing to be concerned about. Those who have not been wholly transparent in their dealings with the tax authority or who have operated illegally are right to be fearful.”
Chris Lean, an international pension adviser for IFA firm Aisa International, said: “Evasion was clearly different to avoidance in the past. Then aggressive avoidance was bracketed with evasion. Now, standard established methods of avoidance are somehow seen as dodgy.”
Meanwhile, John Cassidy, tax investigations partner at advisory firm Crowe Clark Whitehill, thinks it is “inevitable” that legitimate tax planning will be affected by the Panama leak.
He said: “No matter how legitimate the reasons might be for holding offshore assets, perception has become as important as fact, with ‘offshore’ becoming a dirty word,” he said.
Enforcement gains
Henry Balani, global head of strategic affairs at Accuity, which provides sanctions screening software to financial institutions, said increasing sharing of information between countries and offshore centres will lead to “greater enforcement” by tax authorities of their existing anti-money laundering regulations.
Research by Accuity identified 24 individuals in Malaysia, China and Cambodia named in the Panama Papers for links to tax avoidance, of which nine had been previously red-flagged for similar offences. Balani believes this highlights the “deliberate lack of due diligence” of some Asian financial centres.
Despite the unfavourable public perception, chairman of Spectrum IFA Michael Lodhi said the Panama exposé would have no impact on the advisory sector in Europe in the long run.
This view is shared by Geneva-based director of Blackden Financial Chris Marriott and co-founder of UK IFA firm Aisa James Pearcy-Caldwell. All were keen to point out that they do not trade in offshore trusts.
Furthermore, David Pugh at the Fry Group said he had not seen any immediate response from clients in Singapore or south-east Asia.
