The leak of financial documents known as the Pandora Papers shines a light on âshell companiesâ which allow people to hide their wealth. Has the time come for tax authorities to clamp down on them?
Nimo OMer, Narrating:
Hi Iâm Nimo and this is Sensemaker.
One story every day to make sense of the world.
Today weâre looking at tax and the law. Not tax dodging â thatâs illegal â but how you can avoid paying taxes perfectly legally.Â
âItâs been described as the biggest ever expose of financial secrets and appears to implicate presidents, prime ministers and billionaires. The leaked files have been dubbed the Pandora PapersâŠâSky News
Thereâs a chance that even if you havenât paid much attention to them, youâve seen a lot about the Pandora Papers this week.Â Theyâre a leak of 12 million documents detailing hidden fortunes and offshore dealings of world leaders, politicians, and billionaires.Â
If youâve just caught sight of the headlines, you might have assumed that what theyâve brought to light has been criminal activity.
But maybe, what they actually reveal, is more interesting than that.
Itâs mostly not criminal. Itâs what youâre allowed to do under laws that weâve signed up to.Â When I say weâve signed up to them, I mean through our MPs, our government, and through Her Majestyâs Revenue and Customs.Â
So thatâs our question today: is the lesson of the Pandora Papers that maybe, our laws need to change?
Thereâs one man who you are probably familiar with, whoâs caught up in the Pandora Papers story.Â Â
âI want to win on the high street. Itâs not about making money itâs about getting it right.âBBC, Panorama
Heâs the billionaire businessman who mixes with royalty and showbiz, sat as a government adviser under David Cameron, and was given a knighthood by Tony Blair for his services to retail.Â
He ticks all the billionaire boxes. He spends a lot of his life in Monaco, and heâs got a yacht or two.Â
Even if you havenât heard of him, you probably used to shop in one of his stores.
He owned the retail empire Arcadia. The parent company to British Home Stores, Topshop, Debenhams, Miss Selfridge and others.Â
âWe haveâŠ Topshop, Topman, Miss Selfridge, Burton, Wallace, Dorothy Perkins, BHSâŠ I call it as it is. So I think, you know I go to meetings, and they laugh, they cry, I think they leave thinking, damn why didnât I think of that.âtheintern.co.uk
And as part of the Pandora Papers, it was leaked that while BHS was collapsing and thousands of people were losing both their jobs and pensions, Philip Greenâs wife Tina, was buying expensive houses in London.
All completely legally.Â
If weâd known at the time that Tina Green was spending millions on houses while BHS was collapsing, there would have been a fuss about it.
It might not have made a difference to those thousands of peopleâs jobs and pensions, but weâd definitely have asked questions about whether it was right.
But we didnât know. Because of the way the houses were bought. Using whatâs known as a shell company. Thatâs what weâre going to try to make sense of today.
It was back in 2000, that Philip Green bought British Home Stores.Â
[Clip: BHS advertisement]
Things went well for a few years. But then more competition from the likes of Primark came onto the high street, and BHS began to struggle. And in 2016, it collapsed into administration.
âThe plea was written on the shop door. Save BHSâŠ but it wasnât enough. Administrators say all 163 stores will go into closing down sale modeâŠâ5 News
It was one of the biggest failures on the high street since Woolworths went bust eight years earlier.
And parliament had questions for Philip Green.
âSo when it says, in the accounts, P. Green and his immediate family are the ultimate controlling party, what does that refer to?
This is your wife then?Â
She has the accounts, you donât?
Iâve never had an overseas bank account.MPs questioning Philip Green in parliament
MPs were probing away because the finances of BHS werenât straightforward. Philip Green had made his wife the owner of the company because he saved a lot of tax that way.
And the Greens ran other bits of their empire through shell companies.
Thatâs a common thread for a lot of the activity found in the Pandora Papers.
Shell companies only need to exist on paper. They donât need an office and they donât need employees. And theyâre often controlled offshore in tax havens like the British Virgin Islands where a lot of the information is kept private, unlike if you run a limited company in the UK.Â
Shell companies have no real purpose. But they can be really useful if that lack of transparency matters to you.Â
So that leads us to the Green familyâs new properties. Because both before and after the BHS collapse, his wife Tina was able to buy at least four of them in London.Â
A ÂŁ10.6 million home for their daughter, just metres from Buckingham Palace.
A ÂŁ15 million flat in Mayfair.Â
A flat worth ÂŁ7 million in Belgravia.
And another flat worth nearly ÂŁ5 million in Mayfair again.Â
Because Tina Green bought the properties through a shell company, she could keep her identity hidden. And she wouldnât have had to pay stamp duty â a tax on buying property.
So, is there a case for getting rid of shell companies?Â
There arenât many places left where you can create a genuinely anonymous shell company. But in Britain you can. The company registration system contains a giant loophole which lets you do that.
Anonymous shell companies can set up British companies. In other words, itâll be impossible for you to know whoâs really behind that company. Who controls it. Who gets the money from it.
Hereâs a great example: back in 2018, the anti-corruption campaign group Global Witness looked into âPSCsâ, people with significant control over companies in the UK, and found 4,000 of them were under the age of two.
One hadnât even been born yet.Â
Not only that, but itâs also okay to say that your company doesnât know who owns it. And deliberate spelling mistakes in key company registration documents are also very common, to throw people off the scent.Â
So although new transparency rules were introduced in 2016, people can still get round them legally, and avoid tax.Â
In Philip Greenâs case, the shell companies used by his wife were set up in the British Virgin Islands. Thatâs the tax haven I mentioned. And itâs how she could buy those properties in London anonymously.Â
Thereâs a need for better policing of the registry, whether companies are set up at home or abroad.Â Â
What the Pandora Papers show is unsurprising but it could be the nudge government needs to reconsider where the law should stand.Â
Todayâs episode was written and produced by Imy Harper.
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