The conflation of tax avoidance and evasion by policymakers
and commentators in recent years threatens legitimate tax planning, lawyers at
Withers said as Group of Eight national leaders met in Northern Ireland.

With demands for greater transparency from financial hubs
such as the Cayman Islands, Switzerland and other locations a near-constant theme
in recent months, UK prime minister David Cameron and his counterparts have
made financial openness a central topic of the G8 meeting. The UK government, meanwhile, has recently clashed
with international firms such as Starbucks over the latter’s tax bill and
signed a bilateral treaty with Switzerland,
among other countries, to bring back undisclosed accounts.

However, the furore over the role of offshore financial
centers has been accompanied by a worrying trend of tax evasion being lumped together
with avoidance activity, Sophie Dworetzsky, tax partner at Withers, said in a
note.

"The UK
government's spotlight on tax has been a clear policy priority for some time,
with the long awaited General Anti-Abuse Rule coming into UK law this
summer.  What has become increasingly
noticeable, and of great concern to legitimate tax planning, is the way that
the authorities have presented tax evasion (which is clearly illegal) and tax
avoidance (which means working within the rules to minimize tax liabilities)
together, thereby smudging the divide between the two,” she said.

“This has engendered a climate of intense uncertainty for
businesses and individuals, and led to numerous examples of corporations or
individuals paying well over their required tax sums, if only to be sure that
the finger of suspicion cannot be pointed their way.  This cannot be right or fair, and what's
needed now are clearer designations of what is 'right' and 'wrong', and when
taxpayers are 'safe' or 'at risk' in terms of their tax responsibilities,” she
said.

At the weekend – as previously reported – the government of
the Cayman Islands vowed to join a
multi-lateral pact on assisting other jurisdictions on tax, as well as to
publish action plans on the vexed issue of beneficial ownership of trusts and
other structures.

Jurisdictions such as Guernsey, Jersey, the Isle of Man, Liechtenstein, the British Virgin Islands and Monaco have
sighed information exchange agreements and other deals to comply with pressure
from major nations fighting an exodus of tax revenues.

A particularly thorny issue is obtaining data on the
beneficial ownership of trusts and other structures. As explained recently at a
conference in London
organized by Jersey Finance, the promotional agency for the island, disclosing
beneficial ownership can put some wealthy families in danger.

The issue has taken on added urgency after millions of
internal records of client accounts – many of them in the BVI – “leaked,”
according to newspaper reports. The issue has prompted the government of the
BVI – as reported by this publication – to denounce such conduct and warn about
the threat to legitimate client confidentiality.

Withers warned that blurring tax evasion – typically treated
as a crime – and avoidance – which is not – has dangerous implications.

Chris Groves, a tax partner at Withers, said: “The
international tax clampdown has now gathered sufficient force and shape to make
it clear that there are no hiding places left for tax evaders.  Although negotiations continue in many
jurisdictions, it seems inevitable that they will be successfully concluded
before too long.”

“Law-abiding tax payers should have nothing to worry about
here, but the current direction of travel raises two possibilities that would
be unwelcome and damaging for everyone. Firstly, deliberately overlooking the
difference between tax evasion and avoidance may lead us down a road where
structures which are currently entirely legal, swiftly become outdated and are
viewed with suspicion.  Put another way,
are we headed into a spiral of ever-diminishing options for legitimate tax
planning?” he said.

“The second, related, point is the public skepticism
relating to offshore holdings at present. 
Whilst we must acknowledge that offshore jurisdictions are sometimes
used for tax abuse, this should not be used to smear every offshore
structure.  For many, offshore structures
provide personal privacy, and are especially useful for individuals with business
interests around the world," Groves
added.

Some campaigners, such as the Tax Justice Network, claim
that some offshore centers remain secretive and a haven for illicit and
undeclared funds; others claim that jurisdictions in some cases conflate
legitimate privacy with questionable secrecy. In their defense, organizations such
as the CATO Institute, a think tank based in Washington, DC,
have argued that the constant assault on tax havens is an attempt by
debt-laden, often high-spending governments to create a global tax cartel by
punishing tax competition. The crackdown on international financial centers has
also raised questions about how far governments are prepared to bend the rules
of due process of law. Germany,
for example, has paid for information stolen from private banks in Switzerland and Liechtenstein in recent years.