Panama has been the focus of relentless critical attention since the leak of documents from the law firm Mossack Fonseca.
Some may have gained the impression that the revelations suddenly elevated the small Central American state to the status of the ultimate tax haven for investors intent on hiding their wealth, legally or otherwise.
Yet not only is Panama far from being alone in offering a welcoming financial environment to individuals and corporations eager to minimise their obligations and remain protected from public gaze. It is not even among the top 10 nations identified by lobby groups challenging financial secrecy.
A BBC report suggests the wealthy can easily hide their money elsewhere. Its league table puts Switzerland, Hong Kong and even the US as frontrunners, followed by Singapore, the Cayman Islands and Luxembourg.
Hong Kong and Singapore, for example, do not levy capital gains tax. Hong Kong taxes employees’ shares and options but a mutual fund holding assets, including stocks and bonds in those locations, would be free of tax.
While beneficiaries would still be liable in their own fiscal domiciles on investment profits “brought onshore”, even this taxation is mitigated assuming the investor saw no need to move the gains in most years.
Investors will also shop around for the most appropriate jurisdiction for their holding companies, choosing locations with knowledge of their area of business as well as providing friendly corporate and fiscal structures.
The eventual verdict on the Panama Papers seemed certain to distinguish between prudent but innocent financial management and downright illegality, as well as much that lies between.
The leaked data is an extraordinary set of more than 11 million documents dealing with the affairs of 214,000 companies. Public figures in several countries are among those whose financial arrangements were exposed, with half the affected companies based in the British Virgin Islands and a high proportion of banks, lawyers and intermediaries traced to Hong Kong.
“The Panama Papers have placed the spotlight on the world of offshore bank accounts, shell companies and tax havens,” said Roger Wohlner of the Investopedia website.
He said clients often had valid reasons for wanting an offshore account or company and urged financial advisers to seek specialist legal guidance to ensure “all arrangements are done correctly and legally” to avoid being caught up, even innocently, in attempts to identify those suspected of tax-dodging.
Mr Wohlner said the Panama Paper disclosures may cause new rules or laws to be enacted, making it more difficult to shelter money offshore. But he also said “the wealthy will still find a way to do this in some fashion”.
Mossack Fonseca itself has declared itself entirely innocent of wrongdoing.
newsdesk@thenational.ae
