BURNING QUESTIONS
The big Panama tax debate Question What do a Russian cellist, the prime minister’s father and the perpetrators of the 1983 Brink’s Mat gold bullion robbery all have in common? Answer They have all been revealed by the press as clients of the Panamanian law firm Mossack Fonseca, which is currently at the centre of a huge data leak. Based on the information discovered in these leaked ‘Panama Papers’, the firm is suspected of helping many of its clients launder money, dodge sanctions and evade tax over the past 40 years. This article does not implicate or exonerate Mossack Fonseca or any of the firm’s clients, but does provide an overview of the types of scheme that the firm has been accused in the press of using for some of its clients. Understanding the difference between evasion and avoidance First, it’s important to make clear the distinction between ‘avoiding’ and ‘evading’ when talking about tax, the former being legal (although the waters are sometimes murky) and the latter being illegal. If a UK taxpayer receives £60,000 a year in rental income and doesn’t declare it in tax returns and pay the income tax due on it, he or she is evading tax. If he or she moves money from a taxable current account to a tax-free ISA, he or she is avoiding tax. Evading tax involves breaching tax laws, whereas avoiding tax can simply be a case of careful tax planning. Increasingly, the UK government and HMRC are chasing down not just tax evaders,
challenges from the likes of Anna Sui and Anthropologie, and has not yet lost a single case in court. Industry-wide reboot Fast fashion’s impact is undeniable and it is clear that high fashion has had to change the way in which it operates in order to address this. While IP rights can certainly help a great deal, fashion designers cannot rely on these rights alone to protect their businesses. A well- thought-out, coherent strategy which mixes clever business and production practices with IP-rights protection and enforcement, where appropriate, will be a much more effective defence. “Everything needs to be rebooted,” declared designer and president of the Council of Fashion Designers of America, Diane von Furstenberg. This reboot has already started as established brands begin to make changes in an effort to adapt: Burberry announced its plans to make its collections available online and in stores immediately after runway shows; Tom Ford pulled out of several fashion weeks to experiment with different show formats; Matthew Williamson closed its London flagship store to concentrate on its direct-to-consumer ecommerce business; and the likes of Moschino and Versace have launched capsule collections, which release between seasons and offer a limited number of pieces in small quantities. So now that the floodgates of change have opened, the question is: has fast fashion started a revolution? Probably not, but it has certainly caused high-end fashion designers to think more carefully about how to go about protecting their businesses.
but also those who ‘aggressively’ tax avoid. Those who find loopholes in the law and exploit them to avoid tax are finding themselves named and shamed in the press, and the legal loopholes they have exploited are quickly being closed and retrospectively deemed illegal. This sits uneasily with many, who feel that retrospective laws erode the certainty of the law – an integral pillar of the rule of law extolled in jurisprudence as far back as Aristotle. Below are some brief explanations of the terminology and mechanics involved in tax evasion and aggressive tax avoidance schemes: Tax havens Tax havens are countries where tax is more easily avoided. They tend to be islands, hence they are sometimes given the moniker ‘offshore’, but being an island isn’t a prerequisite (Panama being a prime example). The advantages of a tax haven for the taxpayer are twofold; first, its tax rates are low or non- existent, and second, tax havens usually allow more secrecy of asset ownership, especially if the tax authorities are willing to look the other way (an accusation which was thrown at Panama in the wake of the leak). Shell companies and offshore trusts Shell companies are created as disguises. Outwardly, they look like a normal company, but they are ‘empty shells’ which carry on no business other than holding assets and money for the hidden true beneficial owner. The company will have a management team which will sign and file papers, and the company can be shown to be the legal owner of the assets should the tax authorities come
Nicole Wong is a second-seat trainee solicitor at Travers Smith
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