Lessons to learn from the Mossack Fonseca leak
Posted 02 May 16 by Timothy Bow
We have yet to see the true tax fallout of the recent, very public reveal of client details from Panamanian law firm, Mossack Fonseca. The leaked global list of clients and activities turns the spotlight on tax minimisation around the world again and serves as a timely reminder for taxpayers to consider or reconsider their approach to related party dealings in particular.
The Mossack leak adds further publicity to the OECD focus on transfer pricing and profit shifting in the context of tax minimisation. Ignoring for now the potentially valid (and legal) commercial reasons for obscuring stakeholders and beneficial ownership of corporate groups, the use of international tax havens to avoid tax is premised on shifting profits to low tax jurisdictions. In an effort to overcome this, tax and regulatory authorities globally are committed to increasing transparency in financial dealings and whilst the vast majority of taxpayers aren’t looking to avoid tax via profit shifting, a lack of due process in an otherwise legitimate structure may have a significant negative outcome.
Not all corporate structures, global jurisdictions and tax positions adopted are aggressive in nature but it may be that a simple lack of timely documentation is enough to cause taxpayers to fall foul of the substantiation requirements. Taxpayers dealing with international related parties are required to have priced their dealings in accordance with detailed arm’s length principles and to have documented all facets of the price setting process. The transfer pricing rules impose significant requirements on Australian entities and awareness and compliance with those requirements is a fundamental part of good corporate governance.
The media focus on the Mossack Fonseca leak is often on the celebrity status of the clients and the dollars involved and tax authorities around the world will be similarly engaged but not simply with the end game of attracting readers. The ATO has continually stressed its desire to ensure Australian entities are paying their fair share of Australian tax and those that don’t may be subject to ever increasing penalty. It is crucial for a company dealing with international related parties to have (and comply with) policy and procedure designed to capture information in a simplified and cost efficient manner that meets Australia’s stringent transfer pricing guidelines, whatever the complexity of that international structure. Our transfer pricing requirements don’t only apply to operations in low tax or secretive jurisdictions.
If you wish to speak to a tax specialist in relation to matters listed above, please do not hesitate to contact an expert.