A very popular question has arisen throughout the last few months and that is: what exactly are the “Panama Papers?” It has been widely reported in the media, yet few people are familiar with the story. In addition, many people who are familiar with the story are confused as to why it is relevant, as it took place in another country.
Earlier this year, an anonymous insider leaked 11.5 million documents that were in the possession of the Panama-based law firm, Mossack Fonseca. The leak, now widely known as the “Panama Papers,” is the largest leak of confidential data in history.
The leaked documents contained proof of over 200,000 shell companies created by the firm for which their sole purpose appears to be alleged large-scale tax evasion. The initial numbers appear to implicate individuals in dozens of countries all over the world, dating back to the 1970’s.
As a result of this leak and other similar cases, there is significant pressure from the public to take further measures to combat tax evasion. This public pressure will most likely lead to heightened scrutiny by governments globally over individuals who have assets outside of their home country (offshore).
Although the above facts are extremely serious, it is important to note that simply owning assets or entities offshore is not illegal. The illegality in these types of situations arises from the lack of reporting such offshore assets in your country of tax residence, which also results in the failure to pay required taxes on the offshore assets.
If you are a citizen of the United States and own assets offshore, we recommend meeting with an attorney to ensure that you are compliant with all rules and regulations related to owning such assets. Additionally, the United States also has certain disclosure programs which permit non-compliant owners of offshore assets to “come clean” and pay all back taxes (plus penalties) in order to avoid significant criminal penalties.