about 18 days ago
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A Pandora’s box has been opened by the Pandora Papers.

But this is not the first time that we have come across such ‘papers’ and the names are almost always the same – Putin, Pakistani politicians, many Indian industrialists and the usual suspects from the rich and famous across the globe. Anil Ambani, Vinod Adani, Jackie Shroff, Kiran Mazumdar-Shaw, Niira Radia, Sachin Tendulkar and Satish Sharma are the Indian names which have come up this time. Apparently, there are total of 300 Indian names in this “elite” list.

The papers, like the previous ones – Panama and Paradise, reveals a complex web of network used by these oligarchs across the world to set up companies, hiding ownership of money and assets. Like a politician might own a property in UK but will own it via a intricately woven chain of companies based in other countries, often referred to as “offshore.” These are tax havens where setting up a company is easy, laws are murky enough to hide the identity of the owner, with no or pitiable corporation tax.  Cayman Islands, British Virgin Islands, Switzerland and Singapore are some of the known tax havens.

Somehow this did not even evince a cursory raising of the eyebrows to show some wonder. We are so used to seeing the ultra-rich indulge in everything to make their money so very far, albeit making using of any channel, that it came as a usual “ho-hum, aur kya” type of news.

But the sad truth is that this should be worrisome. We can take refuge in the comfort that others too have been named; Indians are not the only ones to be named. But really, is that any comfort at all?

The biggest question which one cannot help but ask – if tax havens are legally allowed by countries to flourish, are these ultra-rich doing something illegal by parking their money there? The Govt allows manufacture and use of cigarettes despite the risks to health – does that make it right?

The question here is not whether or not tax havens are illegal, it is whether these super rich have declared these parked funds in their Income Tax filings? Has this money been shown and then details given of how much parked where to avoid more tax? And therein lay the crime – most of them have not declared the existence of this money to the IT authorities at all. If this is not tax avoidance, what is?

If one see’s the modus operandi, it’s all very simple. Like setting up any company, the tax or lawyer firm helps you set up the shell or holding company – there is no active business and it sometimes owned by shares of another company. They weave a labyrinth of holding companies to hide the source of the registered shell company’ something which we see in P-Notes – you never really know who really owns them. These shell companies disguise the ownership of assets.

There is nothing illegal or wrong about setting up a shell company or even transferring assets to that shell company. What is illegal though is when the person does not disclose his ownership in the offshore shell company as required by law to the IT authorities. And if it is found that ownership was hidden, he is subject to penalties.

These papers are legitimate given the fact that the expose was a result of over one year of investigation by the International Consortium of Investigative Journalists. More than 600 journalists in 117 countries have worked through the files from 14 sources for months, finding stories that are being published this week. 

Tax havens like the Bahamas, Panama, Cayman Islands, Isle of Man, British Virgin Islands, Luxemborg, Bermuda, Switzerland and many more offer very low tax rates and other tax features that make them particularly attractive to foreign investors. The concern is often expressed that the availability of foreign tax haven locations may have the effect of diverting economic activity away from countries with higher tax rates, and eroding tax bases that might otherwise be used to raise government revenue. The worst is that many of these tax havens are now being used by terrorists to fund their activities.

The vexing part, like the one on cigarettes is, why do these tax havens exist when what they do is so clandestine and sinister? They exist because they run a business – what you do outside their country is not their business as long as you follow the regulations stipulated by them. There is minimal intrusive legislation. The best part - tax havens cannot exist without the consent of the countries whose transactions they accept. So, the very developed countries which cry foul that ultra-rich are avoiding tax by using these tax havens are the ones supporting them. But aren’t the banking systems equally responsible for clearing the movement of money to these tax havens?

At the end of if all – the most important question – what happens after this leak? Don’t know about international response but in India, all the rich and elite will come up with perfect papers and prove that all this was done legally. Not a single one will get prosecuted. The rich, are after all, the most law-abiding citizens of India; don’t we all know this truth?

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