Practitioners, Lawyers Under Fire at EU Panama Tax Probe

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By Joe Kirwin

Representatives of the legal, accounting and banking sectors rejected accusations that they continue to play an indispensable role in funneling money to tax havens in testimony before the European Parliament Panama Papers investigative committee.

In their Jan. 24 testimony, the Council of Bars and Law Societies of Europe (CBLSE), the European Banking Federation (EBF) and the global tax policy adviser for PricewaterhouseCoopers LLP also insisted that efforts to combat tax evasion would be easier if lawmakers adopted more clear and precise laws when it comes to defining the different between tax avoidance and tax evasion.

“In our industry we take very seriously our responsibility to ensure that the law is adhered to and that we are not assisting in tax evasion,” said Austrian-based Paul Manhart, a representative from the CBLSE.

He also insisted that it was vital that the EU lawmakers understand that work to assist clients in setting up offshore accounts isn’t illegal.

“The committee should be careful not to infer that any links with the Panama Papers implies that criminal activity has occurred,” Manhart said. “Further, we are not aware of any convictions or even charges of lawyers resulting directly from links to the Panama Papers.”

The Panama Papers, consisting of more than 10 million documents leaked from the Panamanian law offices of Mossack Fonseca, revealed more than 200,000 offshore entities held by wealthy individuals and companies from around the world. Leaked by a whistleblower, who remains unidentified, to a German-based newspaper, much of the original research and reporting of the Panama Papers was a collaborative effort spearheaded by the International Consortium for Investigative Journalism.

‘Heart and Soul.’

Manhart’s testimony followed that of various academics and tax justice advocate groups who said earlier that without lawyers as well as accountants and bankers, the presence of an estimated $12 trillion in offshore bank accounts would be significantly less.

“I believe that the Big Four accounting firms are the heart and soul of the world’s corporate tax planning business,” said Ronen Palan, an official with the London-based Tax Justice Network. “The plans to avoid tax begin with them. Legal firms are often asked for a second opinion on a particular structure as a way of insurance against future legal challenges by inland revenues.”

Palan added that “the big banks such as Goldman Sachs tend to have their own in-house units who dream up new and sophisticated mechanisms of avoidance and then go on road shows to sell them.”

However, Wim Mijs, the chief executive officer of the European Banking Federation, insisted that the “banking sector today is one of the most regulated sectors in the economy and there is a good reason for that. The rules on money laundering and tax evasion have been overhauled.”

He also said that banks have been vital in fighting tax evasion and money laundering via their role implementing new European Union laws requiring the exchange of banking information for tax purposes as well as via the EU Anti-Money Laundering Directive.

Spirit of Law Violation

Brooke Harrington, an associate professor at the Copenhagen Business School and author of the book “Capital Without Borders, Wealth Managers and the One Percent,” emphasized at the hearing that those managing wealth do not violate tax evasion and money laundering laws.

“Their reputation for discretion and dependability hinges on their staying on the right side of the law,” Harrington said. “That does not mean wealth managers do not violate the law in spirit—that happens all the time.”

Code of Tax Conduct

Stef van Weeghel, the global tax policy chief for PricewaterhouseCoopers, said the Big Four firm recently instituted a comprehensive program to ensure its employees provide services that comply with both the letter and spirit of tax laws.

“PwC had adopted the Global Tax Code of Conduct that establishes principles to help guide PwC professionals in judgments they make in advising clients on tax matters,” Van Weeghel said. “It makes clear that tax advice involves discussion of the wider considerations involved, including economic, commercial and reputation risks and consequences arising from the way stakeholders might view a particular course of action.”

Regulation of Advisers

The committee hearing comes as the European Commission is considering legislation to regulate advisers including lawyers, accountants and banks.

However, Palan and Harrington insisted the most effective measure the EU could take against tax evasion via offshore finance centers would be the adoption of an EU version of the U.S. Foreign Account Tax Compliance Act.

“FATCA was a game changer,” Palan said. “There is a very good reason that very few Americans were exposed in the Panama Papers. It has to do with FATCA.”

“Under an EU version of FATCA, every Panamanian account holder, whether company or individual, would have to reveal all essential information to banks,” Palan said.

According to Harrington, if the EU were to join the U.S .in adopting a FATCA law, “we would be cooking with gas” in the fight against wealth being hidden in tax havens around the world.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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