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The recent leak of documents from the archives of Mossack Fonseca, a Panamanian law firm, has drawn further attention to the way in which companies and wealthy individuals have managed to avoid paying taxes in countries where they work or live.

It is lawful in most jurisdictions to take advantage of exemptions and discounts allowed by local laws and regulations, and most revenue services automatically grant such discounts. Many tax codes, including those of the United States and the United Kingdom, which have become appallingly complicated and difficult to understand, grant tax exemptions that can be manipulated to the advantage of the taxpayer and the disadvantage of the revenue. Moreover, tax rules vary from country to country, and countries compete to attract investment by offering lower tax rates.

The Group of Seven and the OECD are seeking ways to harmonize company taxation. Some progress has been made, but so many different interests are involved that it would be unwise to expect an early and generally satisfactory settlement. The focus has been on the way in which multinational companies such as Google, Apple, Amazon, Facebook and Starbucks, which operate around the world, manage to register their profits in countries with below average tax rates.

The Panama leaks have underlined the ways in which rich people manage to mitigate the tax they pay or avoid paying tax at all. Some of the methods used are legitimate, some are of doubtful validity, and some are corrupt and dishonest. Tax avoidance may be legitimate, tax evasion and money laundering are not.

The Panama leaks have sparked various official inquiries and a furious popular reaction in many countries. The prime minister of Iceland has been forced to resign. Close friends of President Vladimir Putin having been fingered in the documents, the Russian regime has predictably declared the leaks a Western plot to besmirch Russian society. The presence on the lists of Chinese billionaires, including close associates of President Xi Jinping, has equally predictably led the Chinese regime to censor all references to the leaks.

The British government, which had been taking a lead in trying to tackle tax evasion, has faced much embarrassment. Prime Minister David Cameron has admitted that he mishandled the initial reports, which alleged that his late father had run an offshore investment company registered in and operating from Bermuda, a British territory. Cameron eventually admitted that he had once held shares in this company but had sold them in 2010 on becoming prime minister. There has been no suggestion that he did anything illegal, but his failure to reveal all the facts at the beginning has led to his being forced to declare details of his wealth and tax returns.

Of greater importance has been the exposure of the way in which Britain has under its jurisdiction some of the most egregious of international tax havens. Britain has been trying to force these territories toward greater transparency, but so far with only limited success. One reason for this has been that the territories have been granted a considerable measure of self-government and resist any attempts to undermine their low tax status.

The Channel Islands (Jersey, Guernsey, Alderney and Sark) and the Isle of Man in the Irish Sea are crown dependencies. They are not part of the United Kingdom and are self-governing. The British government retains as a last resort the right to impose legislation on the islands, but it is unlikely that any British government would be willing to take such action except in an emergency. In fact these crown dependencies have moved toward greater financial transparency and the main problem lies with some of the 14 British Overseas Territories.

The British Overseas Territories are parts of the former British Empire that have chosen not to become independent but are mostly self-governing. With a total population of about a quarter of a million, they range from Gibraltar to the Falkland Islands. Three territories are regarded as particular tax havens. These are the British Virgin Islands (BVI) and the Cayman Islands in the Caribbean and Bermuda in the Atlantic.

Of these the most notorious tax haven is the BVI. The islands have a population of some 28,000 and live by tourism and the provision of “financial services.” A large proportion of the companies, which Mossack Fonseca set up or dealt with, were registered in the BVI. Most were shell companies with nominal directors designed to ensure that the beneficial owners remain anonymous, thus often avoiding money-laundering scrutiny.

Many properties in London have been bought by BVI-registered companies whose real owners are Russian, Ukrainian, Central Asian, Middle Eastern or Chinese. Large sums of money are laundered by the shell companies, which install underground swimming pools, gyms and private cinemas for their clients. Many of these houses are left empty and seem to be regarded as bolt holes and safe deposits. One result has been soaring prices for prime properties in London. This in turn has led to rising rents, making it difficult for young Londoners to live in the capital.

The steps taken by the government to halt these damaging developments have been inadequate and too late. As a result, resentment against the mega-rich, tax avoiders and tax havens has reached new highs. The British government needs to take more effective measures soon to deal with these anonymous shell companies and to control tax havens, difficult as this will be in view of their self-governing status.

Most people regard the Panama leaks as the tip of the iceberg. This is a story that will run and run, and there could well be other prominent figures who will be forced to hide their heads in shame.

Japan may not be a major center of money-laundering and tax avoidance but at least one Japanese company has apparently been named in the Panama Papers. The shenanigans at Toshiba and some other Japanese companies, to say nothing of corrupt politicians, suggest that there are no grounds for Japanese complacency.

Hugh Cortazzi served as Britain’s ambassador to Japan from 1980 to 1984.

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