How do you feel about the individuals and corporations who were named in the Paradise Papers?
Do you think they were wrong to avoid paying tax in Ireland?
Is it something you would do?
Although the general consensus is that they did nothing illegal, their behaviour has been judged by some to be unpatriotic, some even suggest immoral.
Remember the firestorm over the EU’s ruling last year that apple should pay €13 billion to the Irish exchequer, an amount deemed to have been given as unfair state aid to the multinational?
The newspapers were full of suggestions as to where that money could have been spent for the benefit of Irish citizens. There is no denying that, as a society, we could do with it.
There are good reasons why multinationals hire tax experts.
One of them is to ensure they are not double paying tax in several jurisdictions.
That they may end up paying very little tax in any jurisdiction may sometimes also be an objective, rather than a consequence.
But there is undoubtedly some reputational damage when the company name appears in leaked documents like the Panama or Paradise Papers, and arguably even more so if one is an individual.
Would you do it?
So, would you consider stashing money in the likes of the Isle of Man, legally safe from the claws of Revenue? Perhaps you are engaging in just such a practice.
The attractive thing about tax avoidance structures is that you pay less tax (Woo hoo!).
The downside is that your money is tied up in an overly complex structure with usually numerous counter-parties, exposing you to counter-party risk on many fronts.
Consider all those bankrupt footballers and TV personalities we hear about on a regular basis.
I’ve come across a few people who have money in these structures; none of them are clients, just in case you are wondering…
They were not able to tell me where exactly their money was, how much it was earning or indeed how it was earning. They could not name any of the parties involved.
Their tax adviser had arranged the whole thing.
That’s a lot of trust they have placed in one individual.
And that individual is making on average €125,000 out of every million for his or her trouble.
Life’s too short
If there’s one thing I’ve learned about complex financial arrangements, it’s that they lead to paralysis.
Think about it; you’re busy. Your life is full and complex.
The small amount of thinking time you have at your disposal to devote to your finances is not enough to really get to grips with convoluted investment or tax vehicles.
So you don’t go there.
But it niggles that you don’t understand where your wealth is.
Merryn Somerset Webb wrote about this in the FTMoney supplement last weekend. She pointed out that governments are challenging tax avoidance structures, leading to sometimes rapid changes in their terms and conditions. Some are being forced to unwind.
Ireland offers some legal and socially acceptable tax breaks. Perhaps it’s time to make things simple.
How can you plan for your long-term future if there is a big cloud of uncertainty over this portion of your wealth?
Apple can live with the failure of one structure. Could you?