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By Ben Stupples
The day after the U.K.’s annual Bonfire Night, the latest offshore law firm data-leak has ignited the U.K.’s debate on increased transparency over the individuals behind tax haven entities,
Published Nov. 5, the Paradise Papers show that the U.K. needs to “get tough on tax avoidance,” Margaret Hodge, a lawmaker and former chair of parliament’s Public Accounts Committee, tweeted Nov. 5. “We need public registers of beneficial ownership in our Overseas Territories.”
Under existing laws, the secrecy of entities in the U.K.’s overseas territories and crown dependencies undermines the transparency needed for an efficient market-based economy, according to Richard Murphy, City of University London’s professor of practice in international political economy.
“In these offshore structures, we can ask for transparency on who owns them, what do they do, who manages them, and who are they acting for as well?” he told Bloomberg Tax Nov. 6.
The Paradise Papers, featuring 7 million documents from Bermuda law firm Appleby, aim to expose how wealthy individuals and large companies avoid taxes via offshore structures, such as trusts.
Almost 14,500 of Appleby’s clients are linked to the U.K., the second-highest number after the U.S. In addition, U.K. overseas territories—the Cayman Islands, Bermuda, and the British Virgin Islands—make the top 10 list of jurisdictions alongside the Isle of Man, a U.K. crown dependency.
The U.K.'s tax agency asked the ICIJ to see the Paradise Papers “two weeks ago,” chief executive Jon Thompson said in a Nov. 6 parliamentary evidence session on the agency’s annual performance.
“We knew there was a leak coming, but we did not have access to the material which has been provided by the ICIJ,” he added. “We have not received a reply” from the ICIJ.
Created to hold assets for the benefit of certain people or other entities, trusts can make it difficult for tax authorities to identify an ultimate beneficiary through their holding structures.
The data leak comes after the U.K. launched a private online register five months ago to identify the owners of trusts worldwide, giving the government unprecedented power to cite misuse of them.
Through the register, the person controlling a trust will disclose the social security numbers of U.K. residents, and the passport numbers of non-U.K. residents, involved in the trust.
Collecting this sort of information will allow the U.K. tax authority and law enforcement agencies to “draw links between all parties related to an asset in a trust,” according to a September 2016 consultation. In turn, that allows a “marked change” in their ability to interrupt suspicious activity.
A spokesman for the U.K.’s tax agency, Her Majesty’s Revenue and Customs, cited the new trust register in a Nov. 6 emailed statement to Bloomberg Tax. The spokesman also highlighted the U.K.’s public register of beneficial ownership for companies, which launched in June 2016.
“The Government believes that knowing who ultimately owns and controls companies, is vital to tackling financial crime, including tax evasion,” he added.
Echoing the impact of last year’s Panama Papers data leak, the Paradise Papers will boost the general understanding of why governments should enforce more financial transparency, according to Alex Cobham, chief executive of the Tax Justice Network advocacy group.
“If we don’t want to be here next year, we need systemic change, and we get that via an engaged public that fully understands this topic,” he told Bloomberg Tax Nov. 6. “If you’re doing business in any countries listed” in the Paradise Papers, “you’ll be more aware of the risks now.”
In response to Thompson’s claims, ICIJ director Gerard Ryle told Bloomberg Tax in a Nov. 6 emailed statement the Washington D.C.-based network “has a long standing policy that we do not work with governments.”
The U.K.'s tax agency “has been repeatedly informed about our policy,” he added. “If the HMRC wants to see the documents, they have much more power than the media to demand access from the original source of the documents—in this case the law firms involved.”
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