“We’re tax exempt so how can we avoid tax?”
Solidaridad denies tax avoidance in Panama Papers fallout
In 2009 Solidaridad decided to widen the scope of its missions and begin operations in Latin America. It chose Panama as the location for its central office on the continent, and Mossack Fonseca as its agent.
The Panama Papers leak last week revealed the country has been used as an offshore tax haven by the global super rich – from private corporations to politicians – to hide their wealth, and the world’s fourth biggest off-shore law firm, Mossack Fonseca, lies at the heart of it.
Since then Solidaridad has been left fighting off allegations of tax avoidance which go against the very foundations of its sustainability ethos.
It said the fact that, as a registered charity, it is tax exempt, receiving most of its funding from the Dutch Ministry for Development Cooperation, means the allegations are both "nonsense" and "painful".
“We’re tax exempt so how can we avoid tax?”
It had no idea of any of Mossack Fonseca’s activities and immediately severed all links with the law firm after the Panama Paper revelations came out.
Why Panama?
But why choose Panama as the base for its head office of all Latin American operations – and why Mossack Fonseca?
Head of policy and programmes at Solidaridad Network, Joeroen Douglas, told FoodNavigator Panama was chosen for financial reasons – but not in order to avoid tax. As one of the continent’s most economically and politically stable countries it’s the first choice for many international companies wishing to expand to Latin America - in comparison Argentina has suffered two economic meltdowns in recent years, he said.
Furthermore, the local currency is the US dollar; bank accounts can be opened in foreign currencies, such as euros; and the financial system allows money to be easily transferred to other countries. For Solidaridad this meant its funds could go to support farmers across Latin America in the most direct and efficient way. “If our administrative centre was in [other Latin American countries], we couldn’t have got the money so our operations would have been impossible. [Those countries] are the final destination for financial transactions.”
When asked why it chose Mossack Fonseca in particular, Douglas said Panamanian law requires anyone doing business there to have a local residential agent to process transactions. "Unfortunately we were advised by a local NGO to go to Mossack Fonseca as an organisation that could help our operations.”
It used the law firm, which has over 300,000 clients worldwide, to develop the articles and legal statutes of the association, make subsequent amendments and register these articles with the relevant local authorities such as the Chamber of Commerce.
Mossack Fonseca was not involved in advising on strategy in any way, the association says, nor did Solidaridad have any idea of its activities relating to tax avoidance or fraud. “Sometimes they were a bit slow and I had to give them a push but we didn’t see anything related to the alleged money laundering,” said Douglas.
Yet even if the relationship with the law firm was completely above board, it was out of the question for Solidaridad to continue dealing with them. “Although there has not yet been a legal condemnation by a judge [regarding their activities], it is simply not acceptable for us to be associated with such practices,” he said. “We are entirely supportive of the Panama Papers and fully support a fair tax system on a global scale.”
Global communications manager, Elsa Scholte, said: “We have always been explicitly in favour of better tax systems and discipline. It is therefore painful for us to be associated with an agency that is involved in assisting people and companies to increase their own wealth at the expense of tax income. We don’t want any engagement with these types of practices.”
The Netherlands’ Central Bureau of Fundraising (CBF) monitors fundraising activities by and for "charitable, cultural, scientific or other public benefit entities" to make sure they are done in a responsible manner. It It is looking into the organisation’s financial activities in the Netherlands, although it has no remit to investigate activities in Panama.
A spokesperson told us: “We were approached by reporters of two Dutch newspapers with regard to the Panamese organisation used by Solidaridad. We’ve had an interview the director of Solidaridad in which he stated Solidaridad didn’t use this for tax reasons or any illegal purpose. For now the CBF doesn’t have any signs to doubt this.
“We’ve asked Solidaridad to give a clear explanation on their website about the Panama construction, the activities of Solidaridad in Latin America and the international organisation as a whole. We will contact Solidaridad when this is done.”
The CBF said it wanted to see a broad dialogue with other organisations about the structures they use. “We understand the need for efficient structures, but stress also the importance of transparancy, integrity and public accountability. We expect this dialogue to take place in the coming weeks.”
Partos, a trade association for development of which Solidaridad is a member, met with Solidaridad on 14 April and issued a statement following the meeting that it had acted in accordance with the Partos code of conduct. The media reports were based on "incomplete evidence", it said, while chairman and chief of investment at Partos ASN Bank, Jan-Willem Nieuwenhuis, said he regretted that such a negative shadow had been cast on the good work of Solidaridad and the work of development organisations in general.
Nevertheless, given "the dubious reputation of a country like Panama", Partos urged its members to "proactively provide best explanations and clarity" and for accountants to audit this explicitly.
Menawhile Solidaridad, which says it is both angry and sad at having been framed by Dutch and international media, is looking forward.
It is currently in the process of transitioning to another Panamanian residential agent, with details to be announced in the coming weeks, although director Nico Roozen has said he is worried about the damaging effect this could have on its future fundraising objectives.
A statement issued in response to the allegations also contains a link to the accounts of its Panama office, with the independent auditor's report.