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Paradise Papers increase pressure for tax transparency

Campaigns for new measures to tackle tax avoidance are likely to intensify, especially if new revelations continue to surface

Gulf News

The UK Chancellor of the Exchequer Philip Hammond delivers his annual set-piece budget statement on Wednesday in the wake of the Paradise Paper revelations. The disclosures, coming after the separate Panama Paper leaks last year, have re-energised debate on global tax transparency.

The Paradise Papers have put new exposure on hundreds of high net worth individuals and politicians across the world, plus wide-ranging multinational firms. Yet it is actually the internal workings of numerous UK territories that are at the heart of the affair.

During the process of decolonisation, Britain held on to a global network of islands, which either voted to remain UK territories, or have not chosen independence. Amongst these are the present-day 14 overseas territories and three British dependencies, and it is these remnants of the Empire that are amongst the world’s leading centres of international tax avoidance

The disclosures in the 13.4 million newly released documents are financial in nature. But they have already had political ramifications in London and also other major capitals such as Washington.

Ahead of Wednesday’s UK budget, the opposition Labour Party has stepped up attacks on the Government on this issue. Shadow Chancellor of the Exchequer John McDonnell described the Paradise disclosures as the “biggest tax scandal of this generation” and has called for a UK public enquiry. So far UK Prime Minister Theresa May has insisted she wants “greater transparency”, but has refused so far to commit to such a public probe.

In Labour’s general election manifesto in June, the party calculated it could raise some £6.5 billion (Dh31.5 billion) from clamping down on tax avoidance. However, McDonnell says that the Paradise revelations show that even more than that can be raised from a tax avoidance crackdown.

The UK has taken numerous actions in previous years to ensure that its territories and dependencies have fairer and more open tax systems, but this remains a work in progress. Last year, after the Panama Paper releases, Labour Party Leader Jeremy Corbyn proposed that the government imposes direct rule on any of these islands which do not conform, fully, to UK tax laws.

London has cracked down in the past in similar ways so this is not inconceivable. In 2009, for instance, it imposed direct rule on the Turks and Caicos after local officials were accused of selling government land for personal gain. The islands saw home rule restored only after the local government passed acts that mandated tax information sharing with the British government.

Following the Panama papers revelations last year, the UK government did not take any comparable measures for any of the territories that have been named in them, but international and domestic pressure to act is mounting. In Brussels, European Commissioner for Economic and Financial Affairs Pierre Moscovici has called tax avoiders “vampires” and is backing three EU-wide policies aimed at stopping tax avoidance: a blacklist of global tax havens backed by sanctions; new transparency rules for tax intermediaries, bankers, and lawyers; and mandatory country-by-country reporting for profits.

“The Paradise Papers are ratcheting up pressure further to increase tax transparency.”
-Andrew Hammond
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In Washington, Democrats are looking into the Paradise Paper revelations, including allegations of Commerce Secretary Wilbur Ross’s ties with Vladimir Putin’s son-in-law through a reported shipping venture in Russia. Senator Bernie Sanders, the former contender for the US Democratic presidential nomination, has slammed what he believes is an “international oligarchy in which a handful of billionaires own and control a significant part of the global economy” and has called for congressional consideration of Trump’s proposed tax reforms to be halted.

Even further afield in Asia-Pacific, the Australian tax office has said it will investigate and work with partner agencies across the world following the Paradise Paper disclosures. And in India, the tax department confirmed it is already investigating numerous so-called tax havens.

While the UK imposing direct rule on its territories is, in principle, a relatively straight forward process, critics have pointed out that a consequence of seeking to close down these centres of tax avoidance would be that people and firms simply move their money from one jurisdiction to another where there might be even fewer tax regulations and less transparency. Many have therefore highlighted that what is needed is greater harmonised global moves toward tax transparency.

In May 2017, the UK hosted an international anti-corruption summit and has been at the fore of recent global debate on tackling international tax avoidance. The 2013 G8 summit in Northern Ireland, for instance, resulted in the Lough Erne Declaration, which urged countries to “fight the scourge of tax evasion”. Leaders agreed, for instance, to measures that would combat the illegal evasion of taxes, as well as the use of tax havens and loopholes.

And Britain was the first member of the G20 to establish a public central registry of company beneficial ownership information. It has also introduced some of the world’s strictest legislation on bribery, in 2010, making it for instance a criminal offence for a company to fail to prevent a bribe being paid. Moreover, London also co-chaired a UN panel that put tackling corruption at the heart of the new UN Development Goals.

Nonetheless, the Paradise Papers are ratcheting up pressure further to increase tax transparency. While dramatic action in coming days is unlikely, campaigning at national and global levels for new measures to tackle this issue are likely to intensify, especially if new revelations continue to surface.

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics

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