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Published On: Wed, May 4th, 2016

Is There Any Real Chance Of Global Tax Reform?

The recent media launch of the ICIJ documents from Panamanian law firm Mossac Fonseca, now known as the Panama Papers, has highlighted in a most extreme way some of the less known and less appealing hidden corners of the global economy.

While most people might have known that Panama is a tax haven, most would have been surprised at the scale of the release of these Mossac Fonseca documents. Mossac Fonseca is, after all, just one company and there will be many more law firms, accountancies and consultants that are involved in Panamanian company formation.

The sheer scale of the number would suggest that Panama is one of the biggest tax havens in the world.

Clearly their network of introducers and agents is very extensive and is probably the main reason for the company’s ability to have pierced almost every country and most walks of life with their services. It appears that almost every major occupation is represented – from dictators to footballers to business owners – the sole strand that links them is their high income.

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The release and scandals that followed did display one thing – no matter who it is, very few people like paying tax. The defining feature would seem to be that people with higher incomes can afford to spend more money on the phalanx of professional advisers required to establish and maintain these structures. In fact, even American presidential candidates seem to share a taste for reduced taxes.

Therefore, the more being earned, the less likely it is that they are paying the same tax rates as everyone else. This is a fact that luminaries such as Warren Buffett have highlighted in the past when declaring his top rate of tax to that of his office cleaner (his rate was lower).

It is difficult to image a world in which tax havens and the abuse that they can enable ceases to exist. Considering that so many wealthy and powerful people have been dragged into the scandal, there must be huge amounts of resources, lobbying power and incentive – both within the jurisdictions themselves and the wider world beyond – to ensure the survival of the status quo.

Additionally, the headline grabbing names in the leak are all individuals, but multi-national corporations often have many companies located in these low tax jurisdictions. Most of these companies will be for entirely legitimate reasons and all with have been formed with the due care and attention that ensures their legality.

This means that while the release of these documents was shocking and will continue to provide news stories for some weeks to come, it is unlikely to be the trigger of any real change to the sector. Perhaps with the exception of the amount of resources being committed to cyber security by international law firms and consultancies.

Author: Stuart Langridge

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