Mind The Gap | Hong Kong should rebrand itself as a low tax haven
As an offshore domicile, Hong Kong is confronted with a genuine opportunity to dominate the compliant tax haven business
“We [the rich] don’t pay taxes. Only the little people pay taxes,” said Leona Helmsley, a notorious New York heiress who was sentenced for 16 years for federal income tax evasion in 1989. That explains why rich people wish and possess the means to avoid taxes (legally or illegally) using offshore jurisdictions and havens. But, revealing the tax plans of the global oligarchy doesn’t fully explain the significance of the “Paradise Papers.”
The Paradise Papers represents 13.4 million files at 1.4 terabytes, leaked from two offshore service providers and 19 tax havens’ company registries. The files reveal the offshore financial affairs and tax planning strategies of some of the world’s biggest multinational companies and wealthiest individuals. They weren’t as voluminous as the Panama Papers (2.6 terabytes), but the Bahamas and Cayman Islands are more popular domiciles covering a wider range of people and companies.
Since the global financial crisis, tax fraud and money laundering enforcement have accelerated to the point where the concept of the offshore haven needs redefining. The distinction between privacy and secrecy has disappeared. Clients can no longer expect anonymity or secrecy unless you hide assets in politically risky jurisdictions. True account secrecy no longer exists in Switzerland after the UBS conviction for taking part in US$20 billion of evasion and illegal tax planning from the US government in 2014.
Global banks will probably not provide financial services for clients using disreputable havens. Money laundering using offshore tax havens is usually considered a predicate for other crimes. Financial institutions, lawyers and accountants assiduously avoid these transactions.
Tax evasion versus avoidance have been rolled into one deceptive, grey area by authorities, too. The difference is no longer permanently distinguished by your accountant’s tax structure, but rather what the US Internal Revenue Service and Department of Justice decide in the future. It is all too easy for a once compliant tax structure to eventually be deemed illegal or non-compliant. That is why so many private banks no longer offer or recommend tax planning advice. It is simply too risky after the number of tax fraud convictions that banks have been hit with.
