Fallout from the “Panama Papers”

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Much has been reported in the media over the last few days regarding the so-called “Panama Papers”. So what are they?  Basically someone had the servers of Panamanian law firm Mossack Fonseca stealing some 11.5 million documents.

These documents allegedly relate to the financial arrangements of high net-worth people allegedly hiding their wealth and avoiding taxes.  Those individuals named in the documents include Iceland’s Prime Minister (who resigned overnight), the late father of the British Prime Minister, the Russian President, the President of Ukraine and relatives of the leaders of China and Pakistan, the new President of FIFA and soccer superstar Lionel Messi (although he has already announced plans to sue a newspaper over comments made)

The allegations are essentially that the legal firm, via different intermediaries, has assisted high net-worth individuals in managing their financial affairs and some of the structures/schemes/measures used may have been implemented to avoid declaring income and therefore paying taxes in various jurisdictions.

At this point it is really too early to tell if anyone named is guilty of anything other than taking steps to protect their privacy.

The ABC has reported they have identified more than 1,000 Australian links to the data.  The Australian Taxation Office is now investigating those taxpayers to ensure their lodgements are correct.  Their investigations will likely take some time due to what appears to be complex structuring.

There are a couple of key points to make here:

  • There is nothing illegal about Australian taxpayers having funds overseas
  • There are ways to use different legal jurisdictions to legitimately minimise ones taxation obligations although they are really only available to those who are have significantly more wealth than average
  • So long as the income earned by Australian taxpayers is declared on their tax returns, what they do with it after that is their business

To quote the late Kerry Packer when he appeared before the “Print Media Inquiry” in November 1991:

“I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra”

An important point to stress here is should anyone named in the papers be found to have failed to declare income and therefore pay tax in whichever country, it does not necessarily mean they set out to commit taxation fraud.

People seek out the assistance and advice of others such as us for help to them not only to meet their obligations but to minimise the amount of tax they need to pay.  This applies from salary and wage earners to our largest corporations and the sole motive is to look after oneself just as we should all do.

It is possible that should anyone be found to have failed to have met their Australian obligations, they were merely intending to minimise their taxation legally as opposed to have set out with the intent to avoid taxation altogether.  The difference between them can be small but the consequences are poles apart.

The accuracy and validity of the advice given makes all the difference.  I would strongly argue it is not always possible for taxpayers to understand all aspects and meaning of advice they receive.  At some point it has to come down to having faith and trusting the integrity and skill of those providing the advice.  After all, if we all knew everything we would need the advice and support of others.

Only time will tell.

Troy Pearce

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