BURNING QUESTIONS
normal pension fund might make, showing that in this modern age of tax naming-and-shaming, even legitimate and careful tax planning can come under harsh scrutiny. For directors of companies, this pressure may start to change the way they fulfil their duties. Under company law, a director must act in the best interests of the company. Traditionally, this would have included ensuring that the company paid as little tax as possible within the legal limits, as authorising the company to pay more tax than it needed to might have smacked of negligence on the director’s part. Following recent tax exposés in the press on companies such as Amazon, Google and Starbucks, and being sensitive to the resultant impact on the public’s opinion of such companies, a company director might now decide that the company should pay more tax than it strictly legally has to in order to maintain its public favour. To comply with his or her duties, a director will increasingly have to weigh up whether it is better for the company to save money by paying the least tax possible or to pay more and avoid a public shaming. For tax advisers, advising clients to put their money in new tax-avoiding schemes might seem less appealing due to uncertainty regarding which schemes may retrospectively be judged to have been illegal. Advisers may be more likely to stick with tried and tested tax planning arrangements or only recommend new schemes when they have received prior approval from HMRC. For Panama and other so- called tax havens, any aggressive tax avoiding schemes they offer may prove less popular with UK residents (especially high-profile ones) who don’t want to risk being ‘caught out’ and face potential
knocking. This management team will usually be made up of people unconnected with, but influenced by, the true beneficial owner, making the true beneficial owner very difficult to identify, especially if the company is set up in a secretive tax haven. Ownership of company assets will often be further obscured by using offshore trust structures. The trustees will be unrelated to the real owner, who will in purely legal terms merely be a discretionary beneficiary of the trust. However, in reality the discretionary beneficiary will often be telling the trustees when and how much to pay him from the trust fund. Money laundering For those who have watched TV drama Breaking Bad , the concept of money laundering will be familiar. Criminals might make vast amounts of money undetected, but suspicions will be aroused if they start spending it without an explanation as to where it came from. To ‘clean’ the money, criminals might try to pass the money through companies set up for this purpose. These companies might conduct a legitimate business on the side, such as a nail bar or a car wash, or they might be shell companies with hidden identities. Expected impact of the Panama Papers The press furore over the Panama papers leak has applied more public pressure for greater tax transparency, to which some politicians have responded by publishing their latest tax returns. One post-leak ‘revelation’ in the press was that David Cameron had benefited from an offshore hedge fund, which wasn’t wildly different from the type of investment that a
claw-backs and bad press. On 6 April this year, a
new requirement on English companies and LLPs to hold a register of ‘people with significant control’ came into force. Companies that are ultimately owned by trusts are now obliged to seek to identify any person who “has the right to exercise, or actually exercises, significant influence or control over the activities of that trust”. While at first glance this may seem to be an attack on offshore trust structures, how much this will actually discourage the use of such structures remains to be seen since discretionary beneficiaries of offshore trusts are not necessarily caught by the definition of ‘people with significant control’, so this new requirement may not have any significant impact on them. For the ‘average UK taxpayer’, the Panama papers leak could have many ramifications, including the benefit of lowering property prices (as has speculatively been suggested by some in the press). The documents leaked show that many of the most expensive properties in the United Kingdom are owned by offshore companies and layered to hide the identities of the real owners. With increasing pressure for greater transparency of ownership, fewer individuals may choose (or be permitted, if the reason for their secrecy is to hide the illegality of their funds) to invest in property in the United Kingdom and there may be a corresponding stabilisation in house prices.
Jennifer Brophy is a trainee solicitor at Blake Morgan
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