Panama

What you need to know

A giant leak of more than 11.5 million financial and legal records of an offshore law firm called Mossack Fonseca exposes a system that enables crime, corruption and wrongdoing, hidden by secretive offshore companies.

Who are Mossack Fonseca

Mossack Fonseca is a Panama-based law firm whose services include incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services include wealth management.

The firm is Panamanian but runs a worldwide operation. Its website boasts of a global network with 600 people working in 42 countries. It has franchises around the world, where separately owned affiliates sign up new customers and have exclusive rights to use its brand.

Why this has far reaching affects

Sigmundur David Gunnlaugsson, (the Icelandic prime minister) has tendered his resignation following mass protests over revelations that he had owned an offshore company with his wife.

The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

What this means for me

Offshore tax havens have been the staple of the wealthy for generations. Panama together with the Cayman Islands and the British Virgin Islands to name a few have built fruitful financial service industries based on legal loopholes and morally questionable practices.

Whilst the majority of the work done on behalf of their clients is legal, in the context of todays stringent financial and regulatory environment, they act outside of the norm.

This means that they are certainly on the radar of western governments. Mainly because the practices they use, cut out taxable income or gains that should be taxed where the business or individual is located.

Eventually, even as soon as the next 15 years such tax havens will surely be a thing of the past. It is advisable if investing offshore to use jurisdictions that are legally and financial mature and transparent. What you don’t want, is to have created a special purpose vehicle that maybe charged a tax penalty when your domicile country or country of origin is informed of your activities in such a jurisdiction.

What should I do?

If you have funds offshore why not use a vehicle that is recognised by your domicile country? Sure you may pay a little tax but if you act before you are forced to act, you will pay less.

I’m reminded of an exercise between the UK and Switzerland not so long ago. Many clients of mine decided to disclose and pay the price. Some on the other hand decided to close their accounts and move the funds to other non-disclosing territories. I understand the reasons for both. However I’m sure the latter are now having restless nights, wondering if and when the day will come, that they will have to pay their dues.