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.