David Cameron personally intervened to water down an EU transparency drive on trusts, despite warnings it could create a loophole for tax dodgers.
The Prime Minister wrote to European Council President Herman van Rompuy in 2013, successfully arguing for trusts to be treated differently to companies by anti-money laundering rules.
The letter, first revealed by the Financial Times, comes as Mr Cameron faces questions over his family's tax affairs after details of an investment fund set up by his father were reported as part of the Panama Papers leak.
The PM wrote to Mr van Rompuy arguing it was "clearly important we recognise the important differences between companies and trusts".
He wrote: "This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally."
Dutch MEP Judith Sargentini, who led the European Parliament's work on the draft law, told the FT that the UK used privacy arguments to justify a different status and that she had seen it "as a danger and as a possible loophole".
A Government spokesman said Mr Cameron stepped in because of concerns that pursuing trusts would undermine efforts to take action on issues of greater concern, such as tackling shell companies, whose ultimate owners are hidden.
The spokesman added: "In the subsequent negotiations, we were able to secure a sensible way forward which ensures that trusts which generate tax consequences have to report their ownership to HMRC."
He defended the Government's record on tackling tax evasion and avoidance - including legislation forcing British companies to disclose who owns and benefits from their activities, which comes into force in June.
But shadow Treasury minister Richard Burgon said the story "completely undermines" claims the Government was determined to act on the issue.
He said: "Another day and another story emerges which exposes what the Conservative Party really thinks in its heart of hearts about tackling tax avoidance.
"The Prime Minister can't raise a finger to save our steel industry but at the drop of a hat he can personally intervene to undermine EU efforts to clamp down on tax avoidance.
"When things like this come out from the very top of the Conservative Party it completely undermines anything they have said previously on this major issue.
"It's time that they treated tax avoidance as the serious matter people across Britain know it is. And one way they can do that is to stop trying to block or undermine measures which would help to tackle it."
Among the leaked documents from Panama law firm Mossack Fonseca are details of a multimillion-pound offshore firm set up by Mr Cameron's father Ian in the tax haven.
Since details of the fund emerged, Downing Street has issued four separate statements on the PM's personal finances - eventually clarifying that Mr Cameron, his wife and their children will not benefit from offshore funds or trusts in the future.
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