To begin, here is a quick geography lesson: Panama is a culturally diverse country in Central America located between North and South America. Its main language is Spanish, and its capital city is Panama City. If you need to know more, Wikipedia has a write-up.
It is one of many offshore financial centres used by the super rich as tax havens. The leak could have happened in any other offshore country, after all, the law firm at the centre of the row has/had offices worldwide. It just so happened that the leak happened in Panama.
What really happened?
11.5m files were leaked from the Panama office of Mossack Fonseca, an offshore law firm. Mossack Fonseca runs a worldwide network providing services that include incorporating offshore companies and wealth management. The files show the ways in which the super rich use anonymous company structures in tax havens to conceal their wealth. By the way, tax havens are locations in which wealth can be invested away from one’s own country in order to reduce or avoid taxes. They are also fiercely private and usually enjoy lower levels of government regulation.
So what’s the big deal? Tax havens are open secrets
What sets this case apart is the involvement of national leaders, top politicians, their families and close associates. The big deal is finding out that those involved in making the tax laws find (or ensure there are) ways of avoiding them.
Is it illegal?
No, it’s not; tax avoidance is ENTIRELY legal. The issue is mainly ethical. Some are offended that in times of austerity, leaders are not only able to squirrel away vast wealth, they do so without paying tax. According to Jeremy Corbyn, the UK Opposition Leader,”What [the Panama Papers] have driven home is what many people have increasingly felt – there is now one rule for the super-rich and another for the rest.”
Hmmm I have a penny or two, how does it work?
You will need more than copper coins to invest offshore.
Seriously, how does it work?
That’s a topic for another day but this excellent atmospheric video from The Guardian Newspaper covers an aspect. In the meantime, if you require tax guidance and/or accounting services in the UK, get in touch.