UK to introduce new tax evasion law

British prime minister David Cameron has announced new legislation that will make companies criminally liable if their employees aid tax evasion.

The legislation has been brought forward following the release of the so-called Panama Papers, which has revealed the extent of tax avoidance via the UK’s overseas territories, and raised questions about whether Cameron has personally benefited from tax loopholes.

Announcing the new law to the British parliament, the prime minister said that: “This government has done more than any other to take action against corruption in all its forms, but we will go further. That is why we will legislate this year to hold companies who fail to stop their employees facilitating tax evasion criminally liable.”

The legislation faces opposition from some banks, accountants, and law firms, which argue it will make the UK finance sector less competitive.

The Panama Papers consist of internal documents from Mossack Fonseca, a Panama-based law firm, leaked to Germany’s Süddeutsche Zeitung newspaper. The documents include details of an offshore fund co-founded by Cameron’s late father, and which he previously owned shares in.

James Alm has written about the labor market effects of tax evasion for IZA World of Labor. He writes that: “Standard analysis assumes the main beneficiaries of tax evasion are the evaders. However, tax evasion causes broader market adjustments that affect income distribution. Any tax advantage from evasion diminishes as labor and capital move into the tax-evading sector and as competition and substitution possibilities in production increase. When tax evasion reduces some of the distorting effects of taxation, it can even increase the welfare of all households.”

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Tax evasion, labor market effects, and income distribution by James Alm