Why Are The Paradise Papers So Important?
Is it just about ethics and morals?
POSTED BY JONATHAN VOWLES ON 07/11/2017 @ 8:00AM
There is a lot of interest around the Paradise Papers and the revelations about how the super-rich are investing and storing their money. The press is going crazy and HMRC now wants to see the documents ...
The Paradise Papers reveal a lot about how the super-rich are investing and storing their money!
copyright: gopixa / 123rf stock photo
This is leaked or stolen information from two sets of lawyers, both of whom operate in offshore financial centres or tax havens. This is just the latest in a number of significant document leaks, last year's being the Panama Papers.
"Is it just the ethics and morals of what has happened?"
Three of Canada's previous Prime Ministers have been leaked as having offshore investments in Bermuda. Apple, Nike and other large businesses are similarly included, even Queen Elizabeth II has been involved.
The firm of lawyers at the centre of this document leak is Appleby's. The documents cover a 50-year time span and are likely to provide more than just a couple of days' headlines.
"So let's look at the headlines of what has been revealed, but without some of the sensationalism!"
The Queen has had some of her wealth invested into UK businesses, via a fund based in the Cayman Islands. Well, firstly, the Queen doesn't manager her own investments, they are all part of the Duchy of Lancaster. Actually, the job of looking after all her personal wealth is delegated to the Chancellor of the Duchy of Lancaster, who is an MP.
In turn, that MP delegates it to a team of advisers, and in turn they split the job up and pass it on to various investment firms. The Duchy of Lancaster has a total wealth of some £3.3bn, of which around £10m is invested via this Cayman Island investment fund, i.e. about 0.3% ... so not important in the grand scheme of things.
There are two fascinating points about the Duchy. Firstly, the Queen can have the income from the Duchy, but not the capital. Secondly, although the Duchy legally pays no tax, the Queen voluntarily pays tax on the Duchy's income. If the Queen doesn't pay tax, why make an investment through a tax haven? In this case a Cayman Island Fund.
I suppose the obvious answer is that as the head of state of the Cayman Islands, it would be unusual if the Queen didn't support the islands by investing there. Of more importance is the question; did anyone responsible for investing the Queen's wealth consider the ethics of using that fund?
"For the super-rich, investing via offshore tax havens provides a few different advantages!"
Firstly, the main advantage is paying tax at a lower rate to that of their country of residence. This is not illegal, and anybody can do it if they can afford to! Jeremy Corbyn has made a statement about one rule for the rich and one for the poor, when in fact anyone who can afford it can invest via a tax haven.
Secondly, most tax haven jurisdictions provide a layer of confidentiality or secrecy. This means that the super-rich can hide their name from the investment. For some people, particularly big business who don't want their competitors to know what they are doing, this is one of the objectives.
But, and this is where a lot of the media coverage is going, some people have used the anonymity to be unethical or hypocritical. For example, one of Canadian PM Trudeau's aides has been helping that country to push through legislation against tax havens ...
"While that aide has been anonymously investing through a tax haven!"
If you are worried about your name coming up in the Paradise Papers and you want help in reviewing your tax situation, then get do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.
Until next time ...
More about Jonathan Vowles ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.
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