Unveiling the Pandora Papers: Exposing Hidden Assets, Tax Avoidance, and Global Financial Exploitation

A leak of offshore information on 3 October 2021 claimed to identify the secret deals and hidden assets of some of the world’s richest and most powerful people. My cynicism tells me that it won’t be the super wealthy that face the pain of tax authorities but instead the moderately wealthy businessman that thought they’d save some tax and lock away some family wealth. Whilst the Pandora Papers headlines thirty five world leaders (including current and former presidents, prime ministers and heads of state), I struggle to see Tony Blair being caught for tax avoidance or evasion (after all the High Court did not favour prosecution for the war based on non-existent weapons of mass destruction).

The Pandora Papers three hundred other public officials including ministers, judges, mayors and military generals may help prove my theory that the world economy is managed by unfairly exploiting the ‘average’ person in favour of personal financial benefit.

I do wonder whether the world’s politicians hold meetings to decide to have a pandemic or a war to make markets crash so they can invest at a low point and reap the upturn. Obviously acting in this manner would be to use the ‘average’ citizen as a mere pawn in their pursuit of higher wealth, which would be well, unthinkable. 

If I survive the potentially numerous assassination attacks (assuming my conspiracy theories are correct), this could be the start of my political career. I am mere tax adviser who has over two decades experience handling suspected serious fraud investigations for the benefit of those who are misfortunate not to be ‘powerful’ enough to avoid the clutches of HMRC.

The Pandora Papers claim that some 11.9m files from companies hired by wealthy clients to create offshore structures and trusts in tax havens have escaped to the hands of international journalists. Whilst those journalists will concentrate on donations to the conservative party and Mr Blair’s (Labour) offshore structure, HMRC in possession of information through exchange agreements are blanket targeting UK tax residents holding offshore assets.

There is something quite interesting searching the ICIJ offshore leaks database. For example on the second page of the database for the Pandora Papers, I found a family settlement administered by a trust company in Jersey. The settlement carried a very ‘British’ name. I then found a number of UK incorporated companies with the same registered office in Jersey. I found a PLC registered at the same address. I then realised I knew the principal of the trust company!

I found companies with unusually funny names and I found a daughter of a wealthy Brazilian family and her UK address in Kensington owned by an offshore company. It looked like the property has lending against it from another tax haven. Since 2016 the territorial scope of tax on UK property has been the UK. Having looked at the family, I doubt they needed to borrow to buy the property so why leverage unless to reduce taxable income?

The property would no doubt be within the annual tax on enveloped dwellings (Kensington houses are generally worth more than £0.5m).  I am inquisitive. Understanding why people use offshore structures or hold offshore assets is important when applying the anti-avoidance legislation intended to deter their use.

HMRC already in possession of information, have continually for the past half a decade sent ‘nudge letters’. The letters inform the recipient merely that HMRC are aware they have “offshore assets, income and gains” and gently invite them to make sure their tax affairs are correct. It is reported that one hundred and seventy seven thousand nudge letters have been sent. This may seem a lot but it is not.

The Guardian believes there are more than one hundred and thirty eight thousand properties in the UK held by offshore structures. HMRC estimate that one in ten people have offshore interests (that’s over six million).

HMRC employs around sixty six thousand people. HMRC is currently recruiting for sixty four positions. Herein lies an issue. Even if every HMRC employee were full time and working cases, of which they work between fifteen and twenty at any one time, HMRC do not have the resources to make enquiries into all UK residents with offshore income or assets. Fortunately, HMRC’s Connect database will risk profile those for enquiry and those for nudge letters.

Those receiving enquiry letters are likely to be higher risks than those simply sent a nudge letter. Ahead of an enquiry being opened, the HMRC officer is likely to have done a lot of research. Those receiving nudge letters are likely to have simply been identified from an exchange of information with another tax authority. Both need to be considered seriously. If there is an omission from a tax return, the offshore criminal offence could kick in resulting in criminal prosecution. Aside of the risk of prosecution the penalties that can apply to tax arising from offshore income or gains can be as high as 200% (of the potential lost revenue).

It would be prudent for a person holding legal or beneficial ownership in offshore assets or a structure to seek independent professional advice. Even if a nudge letter hasn’t been received, it would be wise to have a second opinion. Legislation and case law applying to the anti-avoidance legislation used to attack those with offshore income and gains is amongst the most complicated. It is not an area a normal accountant, solicitor or tax adviser is familiar with and the good news is that because its complicated, it is rarely black and white. There may be many options for mitigating potential tax liabilities.

The Pandora Papers: Unveiling Offshore Secrets and the Global Elite’s Financial Exploitation

If you have received a nudge letter from HMRC, or want to bring your tax affairs into order before you do, then contact a member of the team here
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list of people named in the pandora papers can be founder here