Why are HNIs moving important assets overseas?
How are the Pandora Papers different from the previous Panama Papers leaks, revealed by the ICIJ five years ago? Unlike the Panama Papers which came from a single source, a law firm called Mossack Fonseca, the Pandora Papers come from 14 different vendors, whose identities have been withheld. This is a much more complete picture of how the wealthy move their wealth from one tax jurisdiction to another, perhaps to evade taxes or to have a system of “tax planning.” more efficient “. The distinction between escape and planning is quite thin.
Leaks from the International Consortium of Investigative Journalists (ICIJ) (the Pandora Papers are the seventh largest, the first being Panama and Paradise) have shed light on the role of tax havens and the service they render to the elite rich world to escape taxation and surveillance in their home countries.
The data is in 11.9 million files, consisting of documents, images, emails, spreadsheets, presentations, audio and video files, and even ink on paper. Much of the work was done in secret for almost two years. Although records date back to the 1970s, most of the data refer to the period 1996 to 2020.
The G20 since the Lehman crisis has taken up this issue, how to avoid base erosion and profit shifting (BEPS). The role of tax havens is troubling because they are the source of huge tax losses. The UK itself is losing significant tax revenue due to its own Crown territories and places like the British Virgin Islands. But despite decades of
Labor and Conservative governments, the UK has not been able to close the loophole, leading Britons to question whether the political will is strong enough.
The Pandora Papers reveal a new path, naming individual states in the United States, which now offer trust structures to conceal ownership of the secret. Previously, Switzerland was accused of being silent on the safeguard of ill-gotten wealth in Swiss banks. Now they are even sub-sovereign entities like the states of the United States. There is an elaborate ecosystem that allows this, with law firms and banks also complicit.
The Pandora Papers show that nearly 4,000 banks have helped their clients set up shell companies or offshore trusts to keep their wealth out of the eyes of regulators. The G20 BEPS agenda is now updated as BEPS 2.0. which consists of two pillars. The first is that of the fair distribution of profits and taxable income. The second is a global minimum corporate tax, so no matter where you go, at least the minimum tax will apply.
This US-led initiative has already garnered support from around 132 countries for a minimum tax rate of 15%. The first pillar will imply that even if the profits are recorded in a tax haven, as long as they are not hidden, the home country can legitimately tax them. For decades, big companies like Apple, Google, Amazon have registered the profits of their European and global revenues in the weak tax haven of Ireland. It will now end.
Indeed, the European Union has fined Ireland for such irresponsible taxation, which amounts to “stealing taxes” from other jurisdictions.
In India, too, a lot of rich people say that they have transferred their wealth to offshore trusts and that it is legal. Perhaps they fear that the tax authorities will take away part of their wealth in the form of wealth tax? The sharply rising stock market and the mega injection of liquidity have dramatically increased wealth inequalities in India and around the world. Most developed countries have a high inheritance or inheritance tax. India does not. Is there a fear of the return of inheritance tax?
Leaving aside the fugitives who defrauded banks or defaulted on large loans from public sector banks, another question to think about is that even though the wealth has been legally salted, does this reflect a capital flight? High net worth individuals move large assets overseas? What is their anxiety? Do they think their wealth is not safe in India?
If India were to fully open its capital account, would there be a massive flight of capital? The Pandora Papers raise many questions that require serious soul-searching. However, we hope that, like the Panama and Paradise Papers, they will not make the headlines of the forgotten newspapers in a fortnight.
(Dr. Ajit Ranade is Economist and Senior Researcher, Takshashila Institution) (Syndicate: The Billion Press) (e-mail: [email protected])