The Panama Leaks, otherwise billed as the “biggest leak in history”, could just as well have been titled “the biggest pile of hypocrisy and misunderstanding” in history!

The implication in all the media coverage of the Panama debacle is that all the activities of the clients of Mossack Fonseca, the tax firm in Panama, were at worst illegal and at best immoral. It revives again for about the fourth time in as many years the age-old debate about tax evasion versus tax avoidance, what is illegal and what is immoral, if not exactly illegal and where the line should be drawn.

What was also fascinating was not only the roll call of heads of state, their relatives and associates who turned out to be clients of the firm, but also the number of top quality London based tax firms which also had close dealings with Mossack, who presumably had been involved in legitimate tax planning for their wealthy clients.

There are few blacks and whites in all this. Money Laundering is illegal – yes. Avoiding tax by transferring funds into corporate structures is probably legal; at any rate, so tough would it be for HMRC to win in that situation that they’re not about to try. “Hiding” money from ex-spouses is probably only illegal because of false disclosures made to UK courts and not strictly illegal in itself. Failure to disclose is of course more a political issue than a legal one, as the Prime Ministers of Iceland and the UK have learned to their cost in recent days.

Perhaps the saddest and most regrettable aspect in all this is that yet again tax evasion, otherwise known as totally legal and acceptable avoidance of tax, has again been brought into total disrepute. Is buying alcohol duty-free at airports morally wrong? And what about making tax-free contributions to your pension pot? Surely, there must be situations where avoiding tax is not only legal and above board, but also totally morally defensible as an activity which brings benefit to society as a whole.

Yes, indeed there are. It’s called making investments in Government sponsored tax-advantaged schemes like VCTs and EISs. These schemes deliver much needed capital to fund new and start-up businesses, in the process providing employment for millions. The cost of these schemes is more than compensated by the increased amounts of income tax, corporation tax and VAT which the State receives in return. It’s almost certainly one of the reasons why the UK is performing substantially better than most of its continental European cousins. The so-called Enterprise Economy is alive and well in the UK and long may it survive!

Martin Sherwood

Martin Sherwood has been closely involved in both Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) since their inception and is a founding director of the EIS Association, the official trade association of the EIS industry.

Martin is now a Partner at Enterprise Investment Partners, a venture capital boutique specialising in fund-raising for smaller companies through tax-efficient structures, with a particular emphasis on the EIS and Seed EIS.


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