Panama Papers - what does it mean for me?

in #finance3 years ago

Before I was introduced to Steemit I was struggling to find motivation to launch my web site with a ‘real’ blog post. It simply had not transpired. Then came along Panama Papers, which took me past that point of wanting to write, instead filling me with the desire to simply bury myself in research and to never resurface. I did write an article about this but have been loathe to publish again on my own web site. This article is being archived in refreshed form here on Steemit for posterity. I have decided, at this time, that Steemit will become my preferred publishing location.

Original article published 6th April 2016.

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Panama Papers - what does it mean for me?

It is just a little insane that in the process of my setting up this web site my motivation to launch it with a ‘real’ blog post simply had not transpired. Then came along Panama Papers, which took me past that point of wanting to write to simply want to bury myself in research and to never resurface. Data and I have a very loving relationship, I love to surround myself in it and it loves to share its secrets with me.

So, when Panama Papers was announced. I buried myself and looked at all the tattles on big business and large personalities, and woke up this morning with two questions:

  • How did they manage to mine what they have and how much did they just hand over on platters to government agencies?
  • What does this mean to me?

The former is already being unveiled in the media. So, I thought I would address the latter. What do you think this means for you?

Well, the times are changing and, if successful in protecting its source then The International Consortium of Investigative Journalists it has opened up a brand spanking new precedent for whistle-blowers. The survival of this whistle-blower is now completely dependent on not having given away their identity for themselves in their day to day interactions, dare a bead of sweat even think about beading near an eyebrow then their fate shall likely be sealed, along with anyone else with a vaguely guilty conscience. Some of the ‘powers’ named in the document have the power to make you disappear and have no issue reaching to foreign soil to reach that goal.

So whilst they are on the chase, we innocents stand by and watch to ‘crazy’ unfold. In other countries with greater question-ability over political ethics there is going to be political change, in some countries there shall be protest and the destabilisation of leaders, in others solidarity as the political spin continues. Here in Australia, though, it comes down to a bunch of corporations and about 800 of individuals. In the scheme of things, without impact figures, this seems relatively small. Only time will reveal the size of the tax pie that got carved by offshore money movements.

Spineless ATO settlements

As the Australian Tax Office (ATO) tracks down these individuals and hits them up for tax evasion, we are going to see many, many quiet settlements. To avoid the difficulties and costs of due Court process the ATO are known to taking settlements at as little as one tenth the known debt, including historic debts by organisations now named as being associated with the Panama Papers. We are going to see a lot of these but don’t hold your breath, it will be some time before they start building cases. As a result of settlements, they are not known for seeing these people face non-financial punishments such as actual gaol time. I hope someone in political oversight gives the ATO a giant kick up the pants expecting that every one of these people gets prosecuted to the full extent of the law. But hope rarely equates to action in political spheres.

More Leaks

Once one person gets away with whistleblowing, others follow suit, somewhat like media attention on suicides. If you are free of the offshore banking set up it doesn’t mean you are off the hook. If your actions are shady then know that even a sniff of it from others may lead to you being caught. Are you shuffling money, paying family members who are not actual employees, or have a raft of false invoices in your tax deductions? Yep, if you are then you are now more likely to have someone pull the rug out from under you and it is going to be someone you know.

A company that holds nearly nothing on the public web has lost over two terabytes of data, what can someone with system access do to you? My first suggestion is to clean up your act and confess any sins before you get caught. Lest, you shall be the at mercy of others….

Sorry, I trailed off topic reminiscing of a movie scene with Andy Garcia in Oceans 11 as his character, Terry Benedict, throws a tantrum demanding that staff find out how they (Ocean’s 11) hacked into his system. Whistle-blowers are going to do it if they are given a strong enough encouragement and they suspect they know what they might find.

Dark Web Understanding

Through disclosure of how the journalists went about mining this giant slab of data and communicating about it securely over international boundaries is going to give way to a better understanding of the Dark Web. Suddenly the fear associated with secure anonymised communication is going to make sense as a safe haven for those pursuing truth (and not just those pedalling unsavoury wares). I think somewhere in the last 3-5 years we forgot about those proxies set up for people in foreign countries to be able to share what is ‘really’ going on with the rest of the world. I believe as this story unfolds people will come to understand the differences between the dark web, the deep web and the internet and rather than fear it, will simple accept each for what they are, knowing that all three are destined to evolve over time also.

Closing Loopholes

The Australian Government can’t change international law or laws governing other sovereign nations so what will they do to close loopholes? The easiest way is to tax the shit out of every dollar that heads offshore and some of that can be controlled in the first instances but other shadier means will be found around it. The way around it is to make moving the money offshore more expensive than keeping it here. Some of the obvious tax avoidance avenues that will need to be closed through taxation will be:

  • dividends payments to foreign shareholders,
  • payments to benefactors of trusts who are not paying tax in Australia on the amount,
  • revenues paid back into foreign parent/holding companies,
  • fees paid on goods and services, possibly inflated or non-substantiable items, also through tariffs and duties, and
  • taxation on loans taken by Australian companies from overseas sources, or the limitation of interest deductibility from the same, including from parent/holding companies.

These are just the ones that spring to mind and is in no way comprehensive. The key thing in this, though, is that such measures would make our economy quite protectionist. (Not that this is necessarily always a bad thing.) It means that we will see costs of imports rise, giving way for local business to be a preferred provider of products for our citizens which is awesome, other than for industries that we have allowed to collapse over the last 30 years. Implementing protectionist tax reform had ought to be worth it too, I actually figure that now would be time to remove exemptions for mining whilst we are at it. Everyone knows that their international buy prices from Australia to the sister company that sells it is just another loophole to be closed. Let’s face it, people still need the commodities that are being ripped from our land. If we are going to let our resources be removed from our own use, then it should benefit our nation far more than it does now.

In reality though implementing the closure of loopholes, like those above, has some serious economic impacts to international trade and our supply chains. It is going to take a long time for Cabinet parties to get their heads around the impact let alone to debate the cost to benefit from such a decision. Don’t hold your breath for every loop to be closed but be sure that we are going to see some changes. Maybe though, we can move the pressure of Mum and Dad investor who are using negative gearing to finance their retirement and instead focus on catching real tax that is being let slide through for the benefit of large multi-nationals and the 'one percenters' who are prepared to dabble in the potentially unlawful.

What about me?

Well, watch the tax space, have a chat to people who understand the economy and international trade about what is happening politically. The means of gap closure will provide more opportunities in our country for us to build economies anew. It also means that we may see somewhat of a market crash as foreign investors are taxed for taking their money home but we will find our way through and the crash could open up opportunities that Generation Y and I are missing in respect to owning their own homes and securing personal investment in a meaningful way for the first time.

If we closed these gaps quickly enough for businesses to not have opportunity to jump loopholes, then we would also have a significant revenue impact which one would hope would be pushed to the citizens as investment into education and health. The potential though is quite amazing because this eye opener is also a good means to revisit the short sightedness of the sale of public assets. If we temporarily crashed the market by restricting foreign investment and cutting the ability for foreign ownership by sale, we have the opportunity for the Commonwealth as well as States and Territories to change the way they manage economics and asset allocation.

Also, for business owners, this is potentially a great time to consider your capability to be a provider to Government for goods and services. There is going to be a counterbalance from this event which may just put your tender into the preference pool because as the owner you have a visible Australian face that pays tax right here in Australia. Right now, that is a really good thing for you.

I am not a bad guy, but I do have offshore funds, what about me?

All I can say is come clean. Make sure you declare your offshore funds (whether through Mossack Fonsecca or not) to the ATO and make sure you take advice directly from them on the tax liabilities you face from your choice of tax minimisation so that you do not cross into the realms of tax avoidance. If there is an infraction that has already occurred then upfront disclosure is your best option especially before the ATO pulls your file together. I respect to this one whistle-blower incident, Deputy Commissioner, Mr Michael Cranston has in an ATO press statement detailed:

“The information we have includes some taxpayers who we have previously investigated, as well as a small number who disclosed their arrangements with us under the Project DO IT initiative. It also includes a large number of taxpayers who haven’t previously come forward, including high wealth individuals, and we are already taking action on those cases.”

So, just come clean. (By the way, the ATO have already offered to treat you nicely if you do.)

Political Ethics has changed

Just before you start thinking that this is all that is going to happen…ponder this statement, also from Mr Cranston:

“The message is clear – taxpayers can’t rely on these secret arrangements being kept secret and we will act on any information that is provided to us.”

Does anyone else here notice a giant ethical shift from the events of Wikileaks where the Government condemned such actions? In the era of wikileaks controversies Governments were scared of the capability of insiders to release sensitive data and they worked on logging and permissioning tools to deter anyone who might be tempted, but now? But now what is going on?

Okay, granted, in times of cutbacks it could be questioned if our political leadership have any ethics at all in respect to where tax dollars are given and taken. However, the statement above flies in the face of our deontological political comfort zone where even if a political leader messed up that we have been encouraged to judge them on the intent of their actions rather than the outcome. Now, because the leak is corporate and to Government benefit the tables have turned to whistle-blower as hero. The fact that this act in Australia, given the role that Mossack Fonseca played, would likely be illegal white collar crime shows a giant swing of political view that our Government has permitted to come through the taxation office that now is a time that our Government will embrace consequentialism – that the ‘rightness’ of an act shall be determined on the consequences it produces rather than the morality of the act itself.

How does that play out into politics and society?

That is a whole new conversation for another day. But if you are keen then share your thoughts on what it will look like in the comments below, along with your thoughts and opinions on how the Panama Papers will or has affected you.


The ATO should die in a fire.

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