Surprise, what Surprise ?
Are the Panama Papers really a surprise ? Wealthy people, media, corporates, lawyers, financiers have known about this for years. Bits about this practice have been reported repeatedly for years.
The headlines seem shocking, but at least as of this writing, quite literally no illegal activity has been uncovered. One prime minister (Iceland) has resigned, another leader (Russia) has expressed no remorse, a third (England) is under fire. The issue: transparency or ethics, depending on how you view it, not wrongdoing.
Loopholes or Black Holes
We all like to blame the banks and lawyers – isn’t it their corporate social responsibility to encourage good behaviour ? From our view, that seems like society itself is passing the blame. Lets face it – the tax rules are the problem. In our view, we need to stop pinning the problem on one or two sectors in society. We all influence the writing of the laws. And as long as loopholes are written into tax laws, no wrongdoing is being done.
The purpose of Special Purpose Vehicles (SPVs) at the heart is to move assets off balance sheet. The fact that companies need to do this at all should have been the first alarm bell. The fact that it has empowered other less ethical behaviours really isn’t that surprising.
Trusts are vehicles to protect assets and allow for effective transfer of wealth from one generation to another. Why do these need to be offshore at all ?
The fact that Delaware Corporations legally exist at all seems rather hypocritical in the face of US criticisms of tax inversions and the imposition of FATCA. Never mind that there are not any representatives in Congress or the Senate of Americans who represent those who have citizenship or a green card but reside overseas.
It’s discouraging that Starbucks pays less than 1% corporate tax on revenues in the UK – but is their legal right even if it doesn’t seem right. And strangely enough, all of the NGOs that are shouting about the issue are beneficiaries of these rulings – none pay organizational taxes. And many have been created using the very same laws and structures.
A Call for Tax Code Disruption – Internationally
It’s time to phase all of this out.
In politics, no more earmarks, Full transparency. Isn’t this the essence of what nearly everyone (left, center and right) is demanding and the political systems are not yet delivering?
It’s clear that the tax rules in all countries are simply outdated, and borrowing from the technology world, spaghetti code. Can’t a simple, clear set of rules be created for organizations and individuals ? Collect at source, forget about annual (or other regular) filings. No deductions. Where are the tax code disrupters ?
Photo credit: Didier Weemaels via Unsplash