HMRC on 'high alert' after Pandora Papers

The massive investigation, led by the International Consortium of Investigative Journalists, pored through nearly three terabytes of data and almost 12m files to reveal widespread use of offshore tax arrangements by high-profile political and celebrity figures. 

According to Adam Craggs, partner and head of tax and financial crime at RPC, the Pandora Papers leak will have put the HMRC on "high alert to investigate tax affairs of those who have made use of offshore tax arrangements".

Craggs said: “HMRC has been handed a treasure trove of information and will examine closely the 12 million leaked documents.

“Given the large amounts of money at stake, the Revenue will be investing considerable resources in investigating the tax affairs of the persons concerned.” 

HMRC will no doubt look to make an example of a high-profile figure to deter anyone who they consider has abused the tax system.Sloane

He said those who have become aware their data has been leaked, might wish to "review their tax affairs before HMRC comes knocking". But he urged them to seek "expert professional advice and consider making a voluntary disclosure.

"This could potentially make the difference between HMRC pursuing a civil or criminal investigation. It is also likely to significantly mitigate any penalties which HMRC might seek to impose," Craggs added.

Until this latest expose, the Panama Papers leak in 2016 was the largest investigation the ICIJ had carried out. 

This leak, which centred around the Panamanian law firm Mossack Fonseca, led to a task force being set up, which resulted in arrests, criminal charges and civil penalties being levied.

Following the publication of the Panama Papers, HMRC confirmed it was investigating 700 leads.

In 2018, the UK joined forces with the US, Canada, Australia and the Netherlands to establish the Joint Chiefs of Global Tax Enforcement (J-5) the aim of which is to crack down on international tax evasion.

Michelle Sloane, partner at RPC, added: “HMRC is now extremely well-equipped to carry out multi-jurisdictional investigations, through shared intelligence and co-operation with international tax authorities.

“HMRC will no doubt look to make an example of a high-profile figure to deter anyone who they consider has abused the tax system through the use of offshore entities and structures.

"It is important to remember that there are also entirely legitimate reasons why a person may wish to hold assets or investments in different countries, such as protection from criminal attacks or in order to be outside of unstable political regimes.”

HMRC was invited to comment. On Monday (4 October) chancellor Rishi Sunak told Sky News that HMRC would be investigating.

Too little, too late?

But for some people, since the lessons learned by the Panama Papers and the Paradise Papers leak of 2017, too little has been done to prevent tax exploitation. 

Sven Giegold MEP and financial and economic policy spokesperson for the Greens/EFA, said: "Tax evasion and money laundering continue to flourish through letterbox companies despite all past scandals.

"The policy measures taken after scandals like the Panama Papers are insufficient. We need stricter rules that ensure full transparency and more international information exchange."

He said tax authorities must also be able to tax capital income from abroad on real estate and complex letterbox companies.

While international rules make tax evasion for smaller amounts more difficult today, he warned the basic problem for large fortunes has remained.

Gielgold added: "Anyone who has money and insolence can shirk their tax contributions. It cannot be possible that people can buy themselves out of their tax responsibility."

Not representative

However, Nigel Green, chief executive of the deVere Group, said professional financial advisers with "globalised" clients should not be tarred with the same brush as the political "elite".

He explained: "When it comes to those who are in or have previously held political or royal office, or those who are actively seeking to break the law by hiding or ‘washing’ money, busting sanctions or evading tax, there must be complete transparency with financial dealings.

“However, the vast majority of the millions of people who use companies providing offshore financial products and services are not representative of those high-profile names that have been disclosed in the Pandora Papers.

The Pandora Papers illustrate more should still be done to improve co-operation between some jurisdictions.Nigel Green

“Indeed, the overwhelming number are hard-working, law-abiding individuals using fully legal and compliant solutions to seek better returns, more options and greater flexibility."

According to Green, because many offshore financial hubs offer tax neutrality, this can help protect firms that do business in multiple jurisdictions from double taxation.

This is why many international investors use these hubs as they can offer the flexibility of corporate structure, a mix of share classes, easy incorporations and a robust legal system.

Green added: "Financial privacy can be needed to keep individuals and families safe. That said, there is a difference between privacy and secrecy.

"Exchanging information between government authorities for relevant tax matters is legitimate. Sharing financial information with anyone else is not. Privacy can be crucial. Secrecy hardly ever is.

"The Pandora Papers illustrate more should still be done to improve co-operation between some jurisdictions; however, they are not representative of today’s wider international financial services industry."

simoney.kyriakou@ft.com