Just deserts?

Many of us will have secretly enjoyed the sight of David Cameron facing media taunts and embarrassment over the revelations about his personal and family investments after the “Panama Papers” leaks.

After the then-British prime minister called offshore tax planning “morally wrong,” it turns out that his family had investments in an offshore investment fund, incorporated in Panama and operated first from the Bahamas and later from Ireland, and that he probably knew all about its arrangements because his own father ran it.


Credibility gap

Fortunately for Cameron, the British EU referendum finally took over the media attention, sparing him one ongoing embarrassment, but it turned out he is facing much the same political problem there. In the same way that he campaigned against tax avoidance whilst benefiting from offshore investments himself, so in the referendum he loudly and emotionally warned of the dangers of Britain leaving the EU, yet he provided that opportunity.
In both cases, the British electorate is seeing a huge gap between what their prime minister says and what he does, so it is not surprising that his popularity ratings took a battering. In polls asking whether he is doing “well or badly in his job,” Cameron fell even lower than the opposition leader Jeremy Corbyn, the man who “looks forward to the day” when an asteroid wipes out the human race.

But beyond enjoying the rare spectacle of a politician getting his comeuppance, there are some serious points behind this story.


No tax evasion

First, as Cayman Financial Review readers will know, there is nothing wrong with using an offshore investment fund. The arguments for doing so are well known and I will not repeat them here, but what the Cameron debacle shows is that the system does actually work just how it is supposed to.

True, his fund did not pay corporation tax on its gains, but investment funds are not supposed to be taxed; they are just conduits between the business and the investors. It is the investor that should be taxed, and Cameron did indeed pay income tax on all the dividends he received from the fund, as indeed the fund’s prospectus told investors they must.

Cameron did not actually pay any tax when he sold his investment, but only because his profit was so small that it was below the UK’s capital gains tax threshold, an investment performance that former BBC Business Editor Robert Peston described as “anything but stellar.”

This repeats a pattern we have seen elsewhere. The Indian tax authorities are only investigating around 10 percent of their nationals named in the Panama leak, because the rest were using an entirely legal “liberalized remittance” scheme. Many of the people named in the Panama Papers are from Gulf states that don’t have any income tax or capital gains tax to avoid.

We’ve seen this all before; whenever the media gets excited by one of these high-profile tax “scandals,” it generally turns out that very few people have done anything illegal. Once the earlier Liechtenstein leaks were actually investigated by the tax authorities, they didn’t support the huge claims of tax evasion made by over-excited campaigners. There just is not much tax evasion in offshore finance centers.



Instead, what we have seen is a campaign of smear and innuendo, in the finest traditions of the British Press. There is no real suggestion that Cameron has done anything wrong except make a fool of himself, but by linking offshore users together, the impression was given of a web of intrigue that simply does not exist.

In particular, a lot of people were dragged into newspaper reports not because there are legitimate political questions about how and where they invest their money but merely because they are household names and the newspapers assume that we have a prurient interest in their finances.

But, as I have written here before, there are real advantages to the work that offshore centers do, particularly in raising capital for developing countries or new technology industry sectors that would otherwise struggle to get the investment they need.

The danger here is that, if people are criticized publicly merely for using or investing through offshore tax centers, they will be put off from doing so, and the countries and industries that rely on that specialist capital will see it dry up.

David Cameron’s government used the G-8 and OECD to push a crackdown on supposed tax avoidance.
David Cameron’s government used the G-8 and OECD to push a crackdown on supposed tax avoidance.

A rod for his own back

David Cameron claimed that he was “angry” about the “deeply hurtful” reports that he thought had “dragged through the mud” his father’s reputation.

Was this the same man who, in 2012, described comedian Jimmy Carr as “quite frankly, morally wrong” for using an offshore vehicle to spread his tax liability and described it as a “scam”?

Was that not “hurtful” and “dragging through the mud” another man’s reputation? Yet Cameron made those remarks just a couple of years after selling his own offshore investments, making a tax-free capital gain himself.

The fact is, the Cameron has fallen into a hole that he himself helped dig.  By describing tax planning as “not morally acceptable,” he has created an antagonistic attitude towards the very investment structures that he benefited from.

And it is not just Cameron himself but the government that he heads. In his 2012 Budget speech, the Chancellor George Osborne, a long-term ally of Cameron who refused to answer questions about his own use of offshore funds, described offshore business operations as “clearly not fair” and said that he regarded tax avoidance as “morally repugnant” and an “abuse.”

Nor are these just soundbites for domestic consumption; Cameron’s government has used the G8 and OECD to push a crackdown on supposed tax avoidance, squeezing as much cash as they can out of global investors in order to cover up their own repeated failure to control government spending or meet their own budget targets.

These are Conservative politicians, who are supposed to understand the importance of investment and business growth, but who have spent much of their years in office attacking some of the most efficient engines of economic development.

Although there is nothing wrong with any of their personal financial structures, it is not surprising that we feel no sympathy for them when they are caught out by the same kind of smears that they have applied to others.



Part of the cause of the problem is that we seem to have lost the presumption that people have a right to a private life.

In 2013, campaigning for open-access beneficial ownership registers, Cameron said that “we need to shine a spotlight on who owns what and where money is really flowing … Some people will question whether it’s right to make this register public … but there are so many wider benefits to making this information available to everyone.”

This was the man who decided not to declare his offshore investments on the Parliamentary Register of Members’ Interests; perfectly legal of course, but hardly in the spirit of openness that he tries to force upon the rest of us.

Open-access registers have nothing to do with stopping tax evasion. The various offshore centers, including Cayman and the Bahamas, have long been signatories to tax exchange information agreements and other systems which ensure that tax authorities and law enforcement agencies have access to the information they need. Well-regulated offshore centers are not about tax evasion and noone with any sense would use them to hide undeclared taxable income.

What open-access registers do is allow the sort of ill-informed or malicious speculation, by the media or campaigners, about people’s finances that the former prime minister said was so “hurtful” when he found himself on the receiving end of it.


Knee-jerk reaction

The danger of the Cameron revelations is that the Conservative government will jump the wrong way in reaction.

Rather than seeing this as an opportunity to explain the role of international finance in spreading global prosperity, the risk is that we will see more assaults on taxpayers, businesses and investment as the politicians try to paint themselves as being on the side of their critics.

We have already seen this, with attempts by campaign groups to use the U.K. government’s recent “anti-corruption summit” as a platform to “open up the U.K. tax havens,” with calls to “get its own overseas territories to sign up to the same standards of transparency on company ownership that the prime minister has rightly so championed” and attempts to link the anti-corruption drive to the push for “country by country reporting.”

None of this is about stopping tax evasion, none of this is about stopping money laundering, none of this is about stopping actual corruption. The work on that has been quietly pushing ahead for years; tax information exchange agreements and other tools between governments that allow necessary law enforcement whilst preserving personal financial security for the vast majority of law-abiding investors.

But tax authorities having access to information is not enough for the campaigners; they want access themselves, to pore over individuals’ financial affairs and smear legitimate investments.

What will be the result? If the U.K. government, embarrassed by reports of Cameron’s financial affairs, throws investors to the wolves and accepts these demands for public information, there is a risk that money will increasingly move from the well-regulated financial centers to less well regulated ones. The result will be a hollow victory; not more transparency but increasing difficulty for legitimate law enforcement agencies who will find that some other jurisdictions are not as compliant as Cayman and other British-linked centers.

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Richard Teather
Richard acts as a tax policy consultant, including advising the Jersey parliament on their recent tax reforms, is a Fellow of the Adam Smith Institute. and is an editor or member of the editorial board of various journals. His book, "The Benefits of Tax Competition", is published by the London-based Institute for Economic Affairs. His work has been the subject of a debate in the UK Parliament and quoted in government studies in the UK, EU and Australia, and hit the national press when the UK government tried to suppress its own civil servants favourable comments on it.Richard TeatherSenior Lecturer Tax LawBournemouth UniversityChristchurch House C206Poole, BH12 5BBUKT: 01202 961870E: [email protected]W: bournemouth.ac.uk   


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