This article was first published in the January 2018 China edition of Accounting and Business magazine.

As a hyper-critical press picks over transactions involving tax havens, accountants should realise that their enabling role will not remain out of sight, says Cesar Bacani   

No one should be surprised that accountants and lawyers figure prominently in the Paradise Papers, the massive set of leaked documents from offshore law firm Appleby, which has offices in Bermuda, Isle of Man and other tax havens – and in Hong Kong and Shanghai. When individuals and corporations want to arrange their affairs for tax efficiency and other purposes, members of the two professions are indispensable enablers.

But in the current environment, where supposed-to-be confidential documents are seemingly routinely hacked and made public for everyone to see, the risk of reputational damage to clients and service firms alike is very high. As the revelations roll out, you cannot help but wonder: are the accounting profession’s vaunted codes of ethics and professional practice really just a sham?

That’s not fair. Those involved have not been established to have violated any rules. But that does not prevent speculation that they conspired with their clients to game the system.

Case in point: the four-time Formula One champion Lewis Hamilton’s successful application for a refund on the VAT paid on a US$27m Bombardier jet. According to the Paradise Papers, EY crafted a plan that involved Hamilton flying to the Isle of Man. The outcome? A US$5.2m refund.

Another case: Nike’s successful programme to reduce its worldwide effective tax rate from 34.9% in 2006 to 13.2% in 2016. According to the International Consortium of Investigative Journalists (ICIJ), which examined the Paradise Papers with its media partners, it shifted billions in trademark profits between subsidiaries to avoid high taxes in Europe.

‘The flow of trademark royalties had helped Nike build a US$6.6bn pile of offshore profits by June 2014,’ the ICIJ asserts. ‘This sum had been taxed at just 3% outside the United States. And because it remained offshore, it had yielded no US tax at all.’ The company’s response: ‘Nike fully complies with tax regulations.’

That is essentially what EY says about the Hamilton refund. ‘All our advice, whether in planning or compliance, is based on our knowledge of tax law and providing transparency to tax authorities,’ it says. ‘Our services are underpinned by a firm-wide global code of conduct.’

These statements are all true – technically. What service companies and consultants are doing is what clients are paying them hefty fees to do: help them navigate the tangle of laws and regulations in order to gain the best outcomes within the bounds of the law.   

It is probably economically unfeasible for finance professionals to stay away from work involving tax havens. But if they have to be in that business, they should be sensitive to how their actions on behalf of their clients would appear to a hyper-critical press and public.

They should comply, and be seen to comply, not only with the letter of the law, but also with its spirit and the intent of the legislatures that passed them.

Cesar Bacani is editor-in-chief of CFO Innovation