Panama Papers: How do offshore companies work?

If Al Capone were in Britain today instead of being in jail for tax dodging, the government would probably be taking tax advice from him.

Governments have bent over backwards to the super rich and the bosses of global companies – under pressure to save money HMRC even sold off its headquarters. It now rents it back from a company registered overseas for tax purposes, staff have been cut back and it has been led by a succession of people who move between the private and public sectors negotiating sweetheart deals with multinationals.

Professor Michael Haynes is the professor of international political economy, department of finance, accounting, systems and economics at the University of Wolverhampton.

How different it is in Iceland. Not so long ago it was a global centre of financial speculation. An Icelandic company even took over the House of Fraser and so owned part of Wolverhampton.

Then it all went pear shaped.

But those nice Icelandic folk had the good sense to jail a few crooked bankers. Now they have thrown their Prime Minister out because of the dodgy dealings of his family revealed in the Panama papers.

I rather like Iceland.

KEY EVENTS:

• April 4: Information from more than 11 million documents reveals the tax affairs of the rich – including 140 politicians, public officials and athletes.

• The leaks – a collaborative effort by the International Consortium of Investigative Journalists – were obtained by the German newspaper Süddeutsche Zeitung and contain records dating back 40 years.

• David Cameron’s late father, Ian, is among the names. He is identified in relation to investments set up by Panamanian law firm Mossack Fonseca.

• April 5: Jeremy Corbyn demands an independent investigation into those involved.

• Downing Street releases a statement describing the information revealed as ‘a private matter’ – but demands for transparency grow.

• That afternoon the Prime Minister makes his first public statement on the issue at an event in Birmingham. He says: “I own no shares, no offshore trusts, no offshore funds.”

• However, later in the day Downing Street issues another statement saying that Mrs Cameron ‘owns a small number of shares’ connected to her father’s land. The shares are declared on her tax return.

• April 6: Yet another statement from Downing Street. This one says there are no offshore funds or trusts that the Cameron family will benefit from in the future.

• April 7: Another day, another statement from Number 10. Apparently Mr and Mrs Cameron did buy shares in an offshore tax haven set up by his father. They bought them in April 1997 for £12,497 and sold the shares on in January 2010 for £31,500.

• The Prime Minister denies the account was set up to avoid tax and says he has ‘nothing to hide’.

• April 11: Mr Cameron addresses the Commons as MPs return from the Easter recess. He ruled out the need for wider disclosure of MPs’ tax affairs, but declared his own tax returns – as did George Osborne and Jeremy Corbyn.

• He insisted he had acted properly and said he had handed all the details of his financial affairs to the Parliamentary Commissioner for Standards.

• He added that he had sold all his shares in 2010 because he did not want any conflict of interest. But he accepted that he had handled the affair badly, saying he was ‘angry about the way my father’s memory was being traduced’.

• The Prime Minister went on to announce new laws would be introduced in the UK to clamp down on tax evasion. Mr Corbyn described the statement as a ‘masterclass in the art of distraction’, while veteran Labour MP Dennis Skinner was ejected from the chamber for calling Mr Cameron ‘dodgy Dave’ and refusing to withdraw the remark.

Only a tiny minority earn enough money or run companies big enough to make dodging taxes worthwhile. And only a tiny minority have the ability to play the system. But how they are playing it.

Leaks from Switzerland, leaks from Luxembourg and now leaks from Panama have shown us how companies and rich individuals live by a different set of rules. They don't only exploit the loopholes, they create them – look at David Cameron's letter to the EU asking them to go easy on tracking of overseas trusts.

And their defenders then have the gall to tell us they have done nothing wrong – 'it's all about tax efficiency, tax optimisation'. I have even been told there is a moral duty to maximise profits by using the law to help companies pay as little as possible. And no, I don't accept that it's the same as using an Isa or someone paying cash in hand to a local tradesman.

I am less interested in what goes into tax returns than what does not.

The bigger part of Cameron's family fortune is still suspected of being held for the future in a tax haven. But the tax affairs of the Cameron or the Osborne families are only the tip of the iceberg. Add up all the tax avoidance and evasion that goes on across the world and we are talking not about millions or even billions but trillions – that's thousands of billions of assets squirrelled away on tiny islands.

But of course, the money is not really there. Tax havens are where the companies put the brass plate, the file in the cabinet or the computer code that creates the illusion they are 'overseas'. Go to the Cayman Islands and look for any of the 500,000 companies that are said to be registered there and that is all you will find. These islands hide assets, but if you want to avoid taxes on profits then bigger countries are the key.

Starbucks, Amazon, Apple and Google use accounting tricks to shift their profits to places like Ireland or Luxembourg. Their lost taxes are needed for our schools and hospitals. But they also undermine local businesses who go to the wall because they can't compete with multinationals playing the system.

Yet it is the UK responsible for many of the island tax havens. And the UK is a tax haven itself – and at its centre is the City of London. Here, the big four accountancy firms do £2 billion of tax work with the world's biggest companies even as they advise governments on policy.

They are helped by what are called the magic circle of law firms and the commercial and investment arms of the high street banks and the merchant banks like J P Morgan and Deutsche Bank.

Deutsche Bank was once the employer of the current industry secretary, Sajid Javid. It is facing questions about the way it helped its top staff to avoid taxes. HSBC was even the bank of choice for the money laundering of the Mexican drug lord 'Shorty Guzman'.

We have never really been in this together. We pay the bills while a tiny minority flaunt the loot they make from dodging taxes in our faces. Much of the money comes back here – or rather, to London.

It is divided between a world for ordinary people and a world for the super rich. They are served by a toadying class of estate agents, high end car dealers, clubs selling pink champagne at hundreds of pounds a bottle, and a barely concealed world of high price escorts and drug dealers.

You think I am kidding? You obviously haven't been to the right parts of London recently. You probably pay your taxes and can't afford it.

Now remind me what happened in Iceland....