The Panama Leaks and the Dilemma for Boards.

I keep telling those that would listen, in today's world there are no more secrets. Whilst we toast the creators of the world wide web and all the ensuring information technology marvels, it does come at a price, NO MORE PRIVACY, NO SECRETS, everything is captured in zeros and ones.

The leaks or more importantly the revelations from the information from Messrs. Mossack Fonseca has already resulted in the resignation of one Prime Minister, and another in the space of a week had to come out with five press releases, with each more revealing. 

Fairly or unfairly, the perception associated with tax havens is that they have something to do with hiding, a negative or illegal connotation always being associated. Then there are those that would argue that having a tax haven is totally legitimate, solely for tax planning purposes, that there is nothing sinister. 

To many there is a very thin line between tax avoidance and tax evasion. Put simplistically, tax avoidance is using the various rules and regulations to mitigate the taxable income thereby reducing the amount of tax payable. On the other hand with tax evasion, it is hiding the income and not declaring it so that it is never subjected to tax, NO TAX IS PAID, one is legal the other illegal!

However if you were to study taxation, over the last twenty to thirty years many of the provisions for parking income from the prying eyes of the tax department have been plugged. In fact anyone submitting a tax return would notice that there is a declaration and not declaring all income is an offence. In other words there is no reason for having an entity in a tax haven, other than to possibly hide something. Admittedly there could be other reasons that one would need an entity in a tax haven, maybe to have a separate bank account so that the wifey won't know the amount spent at karaoke bars, or on new golf sets or on the girl friends!

When the list on Malaysia came out I was surprised to notice that there were a considerable number of public listed companies, theirs chief executives, their chief financial offices, all on this list. Naturally I could not help but wonder why these entities and the officers would want to have accounts in a tax haven especially since their businesses were/are primarily conducted in Malaysia. 

I had one CEO chappie quickly pronouncing that he could not understand why their name was there, naturally I laughed, I was told that I should be more trusting. My reply was that I looked forward to the company convening a Board of Director's meeting to discuss this affront to the company and the press release stating that they had appointed a reputable firm of lawyers to write to Mossack Fonseca to ask why their name was there. I reminded him that  if left alone it would cause unfair reputational damage to the company and its directors.

In fact I believe that all public listed companies should do similarly, however just keep in mind one thing, Do Not Do a David Cameron, on Monday of last week DC said it had nothing to do with him, by Friday he had to make another three additional press statements, and by Sunday he released his abridged tax filings that  revealed that he had not received Stg100,000.00 from his mother, as previously stated, but actually twice that amount. In other words if you wish to tell the truth make sure its the whole truth, don't leave anything out.

I wonder if the Inland Revenue Board, the Central Bank and the Securities Commission are forming a task force to look into this?. After all we are dealing with public listed companies and confidence and trust from time to time needs to be reinforced and assured.

In fairness to all, apart from companies and individuals, there were also lawyers and professional services firms (accounting firms).