At sixes and sevens… in Panama

At sixes and sevens... in Panama

At sixes and sevens… in Panama

It is the theme of the moment. The ‘Panama Papers’ files represent the largest leak of information ever recorded on tax havens. The data now released have its origin in Mossack Fonseca, one of the largest law firms specialised in tax havens, which manages offshore companies and manages fortunes.

The relevance of the information now known, results from the fact that there are several important personalities whose name is involved in tax optimization schemes across Panama. At the time of this article writing, the involvement of prominent figures such as Sigmundur Davíd Gunnlaugsson, Iceland’s Prime Minister, Mauricio Macri, newly elected President of Argentina, Vladimir Putin, Russian President, Xi Jinping, President of China, King Mohammed VI (Morocco) and Salman (Saudi Arabia), Infanta Pilar de Borbón, the aunt of the King of Spain Filipe VI, Michel Platini, Lionel Messi and his father, the actor Jackie Chan, and the Spanish filmmaker Pedro Almodovar. And it seems that, more information about others involved will be released in the next few days…

Regarding Portugal, 244 companies, 255 shareholders, 23 clients and 34 beneficiaries with a portuguese mailing address are listed in the documents. So far, the name of the Portuguese businessman Idalécio de Castro Rodrigues de Oliveira, who allegedly controls 14 offshore companies, has also been announced.

At this stage of tremendous “noise”, it is important for me to separate two types of involvement, with different degrees of severity. On one hand, we will certainly have those who use these offshore companies for money laundering from unclear activity, often illegal and criminal. On the other hand, we have a broad set of stakeholders that uses these tax havens to “simply” pay less taxes. The esteemed reader of this article will tell me that both behaviours are serious, which I share. But you will certainly agree with me that the use of “offshores” for cover-up and/or financing of criminal activities will have a greater degree of seriousness.

I am particularly interested in analysing the situation of those who are looking for tax havens to objectively pay less tax on their (usually high) incomes. Are we dealing with a legal issue, or a moral problem?

So, what is a “tax haven”? This concept is usually attributed to territories and/or countries that have a very favourable tax environment in terms of taxation, which makes them naturally attractive to those who earn high incomes. The Portuguese tax legislation provides for a list (commonly referred to as “blacklist”) of tax havens, including Andorra, Bahamas, Costa Rica, the United Arab Emirates, Fiji Islands, Hong Kong, Jamaica, Maldives, Panama, Puerto Rico, Gibraltar, and the British Virgin Islands.

According to the international law, tax havens are legal. In addition, it is well known how they work, and it is also relatively easy to “set up” a business structure based in one of these territories. Obviously, these structures only become rewarding for those who have a high level

of income, for the costs normally involved in “assembling” and managing these business structures, essentially related to the associated consulting services.

In legal terms, we are generically conversant. As long as the law permits, it is effectively possible to use tax havens to pay less taxes. In moral terms, at least from my point of view, there is a specific problem. I believe that it is not morally acceptable for the “ordinary citizen” (including citizens and small and medium-sized enterprises) to be obliged to pay all their taxes, often bearing an almost suffocating tax burden (just look at the Portuguese case…), and at the same time, to have some companies and individuals enjoying the privilege of a much lower, sometimes outrageously low level of taxation, which is allowed to them in these territories which, quite often, have their main source of income in these schemes.

The ‘Panama Papers’ scandal makes it easy to see why the status quo does not change. Just see the importance of the names involved. Especially at the level of the western policymakers involved, what consequences will this involvement have for their respective democracies? Take the case of Iceland, in which the prime minister was forced to resign. What will happen in other countries?

Let’s keep an eye on the next developments, because surely many people will be at sixes and sevens to justify their involvement.

Till next post!

Marco Libório

UWU Solutions CEO / Consultant / Lecturer


Leave a Reply