Panama Papers expose Government hypocrisy on UK tax havens, say campaigners

Critics say the government still soft-pedals reform of an international system in which wealth can be relatively easily shielded from tax

David Cameron and George Osborne have talked up their efforts to clamp down on tax avoidance in recent years but critics say the government still soft-pedals reform of an international system in which wealth can be relatively easily shielded from tax (Getty Images)

The “Panama papers” expose the gulf between the Conservative government’s hard-line anti-tax avoidance rhetoric and the much laxer reality, according to a host of pressure groups, campaigning charities and tax experts.

David Cameron and George Osborne have talked up their efforts to clamp down on tax avoidance in recent years and the Chancellor unveiled a series of measures in his Budget last month designed to raise £12 billion for the exchequer over the course of this Parliament.

But critics say the government still soft-pedals reform of an international system in which wealth can be relatively easily shielded from tax and they point out that major centres of evasion such as the British Virgin Islands, the Cayman Islands and Bermuda (many of which feature prominently in the cache of 11 million documents from the Panamanian law firm Mossack Foneseca) are British protectorates.

“This leak highlights the key role that UK-linked tax havens play in allowing a privileged elite to dodge paying their fair share of tax” said Richard Pyle of Oxfam. “The UK simply cannot continue to provide cover for the rich and powerful who wish to operate in the shadows” said Toby Quantrill of Christian Aid.

Jolyon Maugham QC, a barrister who specializes in tax, said the Government was forced by public opinion to talk tough on tax havens but that ministers were also concerned to protect the economies of its overseas territories and the City of London, which makes a good deal of revenue from facilitating offshore avoidance. “They want to appease the angry mob without actually doing much” he said.

The Tax Justice Network has said that the UK and its various overseas territories – largely made up of former colonies of the British empire – together constitute the world’s largest tax haven.

Last December the UK government struck a deal with its overseas territories to share information on the “beneficial owners” of companies registered in their jurisdiction, either in centralised registries or ”similarly effective systems”. It is due to come into force in June.

But the government’s original request for publicly accessible registers of these companies was rejected. And demands for the UK and other domestic law enforcement and tax authorities to be given unrestricted access to this information were also denied.

At that time the junior foreign James Duddridge argued that exerting any more pressure on the UK’s Overseas Territories would be counter-productive. “We don’t want to move corrupt money and corrupt practices, we don’t want to move tax evasion and avoidance, we want to eliminate it and we want to do that everywhere” he said.

Mr Pyle of Oxfam argues the December agreement should be re-opened before the international summit in London on tackling corruption that will be chaired by David Cameron next month. “The UK is in a unique position to help clean up the murky world of tax havens - starting by ensuring that the real beneficiaries of shell companies registered in the UK’s Crown Dependencies and Overseas Territories, such as the British Virgin Islands, are revealed ahead of May’s Anti-Corruption Summit” he said.

Robert Palmer, campaign leader at the Global Witness pressure group, said Mr Cameron now faces a “credibility test”. He added: “Unless the government uses the upcoming summit to force the UK’s tax havens to end anonymous company ownership, our other efforts won’t be effective in fighting poverty and instability. We have to clean up our own back yard first”.

The Liberal Democrats called for an independent investigation into exactly what the Government knows about the avoidance-facilitating behaviour of its overseas territories. The party’s leader, Tim Farron, also claimed ministers have not used their existing legislative powers to impose transparency rules in these territories.

“Cameron promised and has failed to end tax secrecy and crack down on ‘morally unacceptable’ offshore schemes” said Labour’s shadow chancellor John McDonnell. “Real action is now needed”.

Last September David Cameron told the Jamaican parliament that overseas territories needed to open up over tax. “I say to them all today, including those in this region, if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

What can the UK government do about tax evasion?

Britain’s government could take a much tougher stance on its overseas territories and dependencies and force them to be transparent, according to campaigners and experts. One of the central demands from pressure groups are for tax havens to be forced to set up a public register of the ultimate beneficial ownership of companies, trusts and foundations established in their jurisdictions. Another key demand is for the automatic exchange of tax information between tax haven jurisdictions and the authorities in the UK and elsewhere. The deal signed between Britain and its overseas territories in December falls short on both of these fronts. And Alex Cobham of the Tax Justice Network argues that the leaked files show how law firms in places like Panama actively seek to disguise ultimate ownership. At the moment if countries refuse to sign up to demands for transparency nothing happens. Campaigners such as the Tax Justice Network say countermeasures should be imposed. That could mean a bar on any entity registered in a “non-compliant” regime from bidding for public contracts in the UK. This could even be extended to a ban on them doing any kind of business here, providing a powerful incentive for the regimes to comply. Alternatively, Jolyon Maugham QC, a tax expert, argues the UK Parliament could, in extremis, simply change the law and mandate full transparency in dependent territories such as Bermuda and the Cayman Islands because they are not sovereign territories. “I don’t think there’s any doubt that we have the power to directly legislate” he said.