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Update on the Panama Papers saga

Some in SA may be linked to dubious offshore bank accounts – Ettiene Retief – Saipa.

SIKI MGABADELI: Now we’re focusing on the implications of the so-called Panama Papers. Reports have shown that some South Africans may be linked to offshore bank accounts as clients of a Panamanian legal firm. The Panama Papers is a ground-breaking probe by the Consortium of Investigative Journalists that lifted the lid on offshore links of renowned figures world-wide. It includes over 11.5 million documents from the files of Panama-based law firm Mossack Fonseca, but can we assume that anybody who’s named in the Panama Papers is culpable in some way? Well, let’s ask Ettiene Retief, who is chairperson of the National Tax and Sars Stakeholders’ Committee, with the South African Institute of Professional Accountants.

Ettiene, thanks for your time this evening. I think firstly, I’d like to hear your view on the Panama Papers leak as a whole. What did you make of it?

ETTIENE RETIEF: Good afternoon. I think it’s interesting and it’s only a starting point. Remember, Panama is only one of the countries that is often used for its structures and it’s not really that Panama offers any tax advantage. But what it does do is it aids in the complexity of these group structures that are used often to hide illicit funds or to avoid taxes. But one can’t assume that always it’s illegal activities are linked to them.

SIKI MGABADELI: And we’ll touch on that in a moment. But when you look at this particular leak, and you look at it alongside the HSBC Swiss leak of last year, how significant is it?

ETTIENE RETIEF: Well this leak is far greater than the HSBC Swiss leak because the HSBC Swiss leak was essentially a single bank within Switzerland and that was only the existence of a bank account, where the Panama one, here we’re talking about basically it gives information about group structures. It’s not about just a single place with a bank account itself. And it shows multiple companies and structures and parties involved in it. It comes out from a law firm which is often used for these kind of complex structures and more, I would say, bigger issues than just where the money is physically held.

SIKI MGABADELI: When people hear the term “tax haven” the assumption is that there is something dodgy. Right? We’ve seen a lot of concern over the past few years around base erosion and profit shifting, for example. So let’s just go into the reasons why people might want to use a tax haven, and when it is legal.

ETTIENE RETIEF: Well, I think the starting point for us is to understand a tax haven. It has two components. It’s not always just a low-tax or no-tax jurisdiction; it also comes down to secrecy or anonymity. So any place where information can be kept secret and we can’t establish who the beneficial owner is, could also be tax haven of sorts. So often enough, these structures are used for various reasons. It could be because I want secrecy or an anonymity to it. It could be because of my global operations, I’m doing it to correctly route, invite property or cash holdings. So there are some legitimate reasons why people would want to do it, but often enough when we talk about a tax haven being used, you have to question how much substance there is to the transaction.

As an example of this, I have a company or a structure that flows through a tax haven. The question is, what does that company or that structure add to a transaction to legitimise it? So if we use, we’ve seen Starbucks, we’ve seen Apple, we’ve seen a lot of these other, like Amazon and that, all go through the gauntlet for it, because each of these structures, aid effectively shift off profit into either places where there’s not much declaration or disclosure to be made or low tax, and then the ultimate tax is left to be taxed in a real place where the profit should be taxed isn’t really there to be taxed any more.

SIKI MGABADELI: Okay, so what you’re saying is within the tax haven you would have to look at what that entity actually does, does it actually add any value? Does it produce anything that would make the particular business actually shift money there? Is that what you’re saying?

ETTIENE RETIEF: Correct. So if I use an example – if I add another company to my structure, so let’s say Mauritius, which is often associated with South Africa as being a place to route for tax haven. So let’s say instead of me buying a product directly from, let’s say, China, I go and my Mauritian company places the order, brings the product, but the product never actually touches the Mauritian shores, it comes straight from there to South Africa. But in the whole mark-up process, 80% of the profits are held in mark-up in Mauritius and only 20% ends up in South Africa. The question is what did Mauritius do for it? There might be a director and a single desk in Mauritius, no real substance, nothing added that even touched the product. How do they justify an 80% profit margin over the 20% that ultimately comes to South Africa? That’s where these kind of structures become, I would say, dubious, but it’s important to know it’s not always illegal.

SIKI MGABADELI: It must be very difficult for tax authorities globally to actually pick up on these types of transactions. So how helpful would you say this leak has been to that process?

ETTIENE RETIEF: Well this is the key thing  – that the use of tax haven isn’t always illegal because I might within the letter of the law be 100% compliant in each of the jurisdictions. But the ability for any country to tax on it to say that this is not an appropriate profit or you’ve…comes down to information. So the more information any tax authority has the better it can essentially audit or tax a person. So, whether it be the Swiss leak or even now the Panama Papers, or any other subsequent leak from here, that information is invaluable for tax authorities around the world to be able to pull back on those illicit tax transactions and to be able to tax it properly.

SIKI MGABADELI: Now globally are authorities succeeding in narrowing the space for these types of activities?

ETTIENE RETIEF: I would say in some cases yes, there is a lot of it. We’ve already seen some quite big cases out of the European environment coming through where that’s been attacked. We’ve seen in South Africa that there’s a lot of movement of our legislation of trying to bring in or trying to attack those kind of things and it’s pretty much on the top of the agenda for most countries worldwide to look at this base-erosion and profit-shifting issue, and often behind that is the use of company structures and complex structures to facilitate it.

But to say whether we win or lose, I think it comes down to [the fact] that even if we deal with just Panama Papers, it unravels structures and that. But still where things are so complex and are so difficult to be able to effectively tax it at a whim, that I think the whole concept of a tax haven is something that’s not going to be over with. People are going to just find maybe more complex or different avenues to pursue this rather than through maybe an established Panama route that was already known.

SIKI MGABADELI: Thanks for your time, Ettiene Retief, chairperson of the National Tax and Sars Stakeholders’ Committee with the South African Institute of Professional Accountants.

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