World Finance Winter 2021-22

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w e a lth m a nagemen t

Tax & Legal

The papers phenomenon: of information, law and (dis)order Various leaks of data over the past years have brought to light a trove of private or concealed financial information, but are invasion of privacy and demonisation of offshore companies absolutely indispensable?

words by

Thierry Afschrift MaNaGING paRtNER, aFSchRIFt tax & lEGal

Swiss Leaks, LuxLeaks, Paradise Papers, Panama Papers and now the Pandora Papers: 12 million confidential documents from the archives of firms specialising in the creation of offshore companies in so-called tax havens. The phenomenon of the papers and leaks is in full swing and causing strong reactions among the public and major upheavals among the political class; however, some aspects of this ‘practice’ raise substantial ethical and legal questions. Tax evasion is illegal and therefore legally and socially unacceptable; it can neither be 90

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condoned nor advised. It is obvious that exposing patterns of fraud can be useful for the authorities, in order to know the scale of the problem and the methods used by fraudsters and their advisers, whose names are also exposed. This allows authorities to undertake all necessary steps to counteract these illegal schemes, whether national, European or international, mainly at the OECD level, where the committee on fiscal affairs is ensuring the urgent implementation of the main base erosion and tax shifting (BEPS) actions in this area. These actions aim to neutralise the effects of hybrid mismatch arrangements, design effective controlled foreign company rules, limit base erosion through interest deductions and establish financial payments and mandatory disclosure rules. While the explanation of fraud schemes may be of educational interest, the

publication of the names of the beneficiaries of offshore companies can only be of theoretical interest to the ordinary citizen.

Total (while uncontrolled) disclosure As previously said, this way to proceed poses many problems on legal, ethical and social levels. It should be emphasised from the outset that the facts are presented to a largely nonspecialised public, which has difficulty distinguishing between tax fraud (an illegal practice) and tax avoidance (a perfectly legal practice). Political statements exacerbate this confusion, such as the recent statement by the Belgian minister of finance: “Avoiding tax through off-shore constructions is fraud.” This statement must of course be tempered. Firstly, it is obvious that an offshore company (like any other structure or company, wherever it is established) is nothing more than an instrument. And like any instrument, the offshore company is not legal or illegal in itself: it is its use that may or may not be. An offshore company is therefore not necessarily an instrument of tax fraud.