Suzanne O’Brien, Director of Student Recruitment and Student Experience at the University’s Business School and Chartered Tax Adviser, comments on the leaked documents from Panamanian law firm, Mossack Fonesca, and the difference between tax evasion and avoidance.

The Panama Papers puts taxation, yet again, front and centre of public consciousness. However, it is in danger of combining tax avoidance with tax evasion, strategy with robbery, and has already muddied the waters regarding individual and corporate taxation.

What tax we must pay, is what the law demands. However, a fundamental principle of any tax code is the right to organise one’s affairs so as to minimise the tax liability. Tempting though it may be, none of us should co-operate with those who offer a VAT-free cash price which is lower than the ‘official’ price. This is tax evasion. However, we are entitled to utilise mechanisms such as transferring assets between spouses to legitimately minimise our tax liabilities. This speaks to human nature – no-one wants to pay more tax than they must! For corporates, the drive to retain profit through reduced taxation is legitimised by shareholder demand for increased profitability.

Where is the line between using a structure enshrined in legislation to minimise a tax liability, and applying the legislation to achieve a reduced tax liability in a way that was not intended by the legislature? The government has grown increasingly intolerant of the latter as demonstrated by the General Anti-Abuse Rule introduced to tackle ‘abusive’ avoidance. Perhaps the fault lies with the legislation; if the law permits, can’t we avail?

This is the key issue highlighted by the revelations from Panama; the challenge for national government to introduce legislation that functions robustly in an international arena. The tax take should be equitable and certain, for both national and international citizens. This is made even more difficult by the international community most of whom seem unwilling, or unable, to agree a global framework to counter tax leakage. No surprise given the complexity of the task. This is compounded by competing demands driven by differing economic circumstances (for some countries the haven status sustains their economy).

Before we despair in the inevitability of ‘greed is good’ or that ‘tax is for wimps’, it is worth remembering that Corporate Taxation is less than 10% of the annual tax earned by the government in the UK. In that light, maybe we should abolish corporate taxation? At the very least, legislators should review our leaky bucket of a tax code so that it is fit for purpose in this modern global world.