Josh White of International Tax Review interviewed me last week on the Paradise Papers; please find the script (with a few tweaks) below:
Should high net-worth individuals fear this kind of media exposure and a crackdown on tax havens?
“The answer is a massive and resounding ‘yes’. However, it’s not so much the media which is of concern, it’s what Governments will do with this information. This is the big question.
Can Governments be trusted?
If you are evading taxes – then Governments can be trusted to investigate and come down upon you hard and without mercy, but what if you have done something within the law and on good advice – Governments will try to rewrite what you have done to make you taxable – and in particular if you are the settlor or beneficiary of a trust offshore.
If a trust is not set up properly then they will try and argue that it is a sophisticated form of tax evasion!
As a result of CRS (the OECD initiative Common Reporting Standard) Governments will know precisely who has what and where, trusts will come under scrutiny and investigation. There is nothing inherently wrong with setting up a trust and taking money out of the country, but it will not stop Governments investigating once they have detailed information and try to have it set aside and tax the settlor as if it had not existed.
If you’ve done everything bona fide and with the best interests of your family in mind you shouldn’t need to worry, and it is arguable that it is an invasion of your privacy.
Take Lord Ashcroft, for example. There are talks that Lord Ashcroft will have to pay millions more in tax because the leak suggests that Lord Ashcroft may be exerting too much power over his appointed trustees. The suggestion is that he does not ‘trust’ his trustees by his interference and the question which HMRC will ask is, was it ever intended that a trust should be created or is it a devise to avoid tax?
Tax authorities are not normally privy to such private correspondence, but they believe they are entitled to investigate any trust where there is a ‘Protector’ on the basis that they have reason to believe the Settlor did not trust his trustees to give them unlimited ownership.
If HMRC is successful in proving that Lord Ashcroft’s trust is a sham the tax authority will issue a demand as if the trust never existed. I’ve seen investigations go on for up to 10 years, seen the removal of passports by tax authorities and costs run into hundreds of thousands of pounds. For those who think that they have nothing to fear from an investigation may I remind them that an investigation for tax is worse than an investigation for murder, because tax authorities have greater powers than the police.
Furthermore, there is a real fear relating to a handful of Governments which employ unscrupulous officials that the detailed financial information being collected and exchanged will get into the hands of crooks, criminals or thieves – which could threaten the safety of the wealthy international family.
Is the media missing the perspective of entrepreneurs when it comes to tax avoidance?
We want entrepreneurs in this country and they are entitled to keep their money in whichever country they chose, if not then the government should put exchange controls back in place.
Is it morally wrong to avoid taxes?
There have been numerous cases on tax avoidance such as with the Duke of Westminster and the Ayrshire Pullman Motor Services cases in which judges have made it clear that there is no moral obligation to put the most amount of money into the government’s coffers.
This general rule however has been watered down in 2013 by the General Anti Abuse Rules (GAAR) which allows the Government to reinterpret what it thinks is aggressive tax avoidance.
Although not used very often, it signals an increasingly uneven playing field as Governments across the world become more aggressive in raising tax revenue. Raising taxes is not about ‘paying a fair share’ it is about Governments making legislation sufficiently specific to collect revenue and if it fails, then tax cannot nor should it be collected.
In future, I suspect, we will see many more people face ever more intrusive tax investigations alongside ever greater tax claims. If trusts are to survive, offshore trustees need to make sure that their trusts are out of the line of fire by removing all persons of significant influence. No matter how meticulous the settlor and trustees have been in showing that the trustees have an absolute, unfettered right to make decisions, no-one, in their right mind would want an investigation, which is why we advocate that changes should be made to trusts to make them less vulnerable to attack.
You can buy Caroline's book 'When you are Super-Rich, who can you trust' here.
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