Across Europe, governments and businesses are acting reactively to tax scandals rather than agreeing on how these scandals should be dealt with across borders
Everyone has heard of ‘the Panama Papers’, but few understand what it really means with regards to international taxation law. Indeed we are witnessing a complex process in which the whole international taxation and regulation structure is being modified by international bodies such as the OECD and the EU.
Beyond the media, the Panama Papers seemed to have very little immediate effect both traditionally or socially. However we are now witnessing some movement with clear legal implications. The British Virgin Islands’ Financial Service Commission (FSC) fined the law firm Mossack Fonseca (the chamber at the core of the Panama Papers scandal) $440,000 – its largest penalty ever issued.
From the 240,000 shell companies represented by Mossack Fonseca’s firm, 50 per cent of them were established in the British Virgin Islands. This Caribbean British overseas territory found up to eight legal breaches were committed by this Panamanian law firm in addition to their cooperation with money laundering activities in other jurisdictions.
As directors they failed to exercise the due management and compliance control to prevent money laundering, but they also failed to exercise the due diligence expected to avoid risking their clients’ assets and business transactions. Following a six month investigation at Mossack Fonseca’s local offices, those were the conclusions drawn by the BVI FSC.
The fine is in reality relatively low, especially given its high-profile nature and the magnitude of the Firm’s operation and the financial scale of the companies under management. This fine seems to put an end to the odyssey of Mossack Fonseca in BVI. Following this, business will continue as usual, maintaining its operating license at the Virgin Islands.
Some experts and tax advisers have recently asked the British government to extend its tax investigations to the Overseas Territories and Crown Dependencies as a way to enforce a firm’s tax avoidance control to prevent situations like the BVI’s fine which in reality does very little to improve the situation… (continue reading here)