Panama papers leak provides road map for tax investigations

By Alistair M. Nevius, J.D.

Tax authorities around the world vowed to investigate possible tax evasion and other crimes after the International Consortium of Investigative Journalists (ICIJ) handed them a road map by releasing the so-called Panama papers, revealing the complex financial arrangements of thousands of offshore entities. At a time when the Organisation for Economic Co-operation and Development (OECD) and the G-20 are working toward greater transparency and exchange of information, the release of the Panama papers may provide more immediate information to tax authorities than the OECD’s base erosion and profit shifting project, which has not yet been fully implemented.

The more than 11.5 million documents were hacked from a Panamanian law firm, Mossack Fonseca. The leaked files include information on 214,488 offshore entities that the ICIJ says are “connected to people in more than 200 countries and territories.” The ICIJ, which published summaries and some details from the data Sunday on its website, promises to release a full list of companies and people in May.

Mossack Fonseca specializes in forming offshore companies, which in and of themselves are not illegal. The firm’s website advertises that one of the advantages of using its services as a registered agent is, “We offer jurisdictions that are tax exempt regarding any commercial activity or operation carried out outside its jurisdiction.” (It also boasts of its “secure, state-of-the-art technology,” which apparently was not enough to prevent the downloading of the 2.6 terabytes of leaked information.)

The firm also claims to “have a department that conducts thorough due diligence programs to verify the legitimacy of each of our clients in accordance with the legal standards in force.”

Among the connections to world leaders revealed in the documents are “banks, companies and people tied to” Russia’s president, Vladimir Putin; an offshore firm “secretly owned” by Iceland’s prime minister, Sigmundur Gunnlaugsson; and “companies linked to” Ukraine’s president, Petro Poroshenko, the ICIJ said.

Australia, Austria, Brazil, France, India, the Netherlands, New Zealand, and Sweden are reportedly starting investigations based on the information in the documents. The Australian Taxation Office says it is investigating more than 800 Australian taxpayers named in the documents and has linked more than 120 of them to an unnamed Hong Kong offshore service provider. In announcing its investigation, the Netherlands Ministry of Finance says it “will particularly focus on information that can be used for taxation purposes.”

With the leaked information connected to 200 countries and territories, taxpayers should expect other tax authorities to start their own investigations.

Alistair Nevius (anevius@aicpa.org) is the JofA’s editor-in-chief, tax.

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