Exactly one week ago, the “Paradise Papers”, representing 13.4 million files from the Bermuda offshore law firm of Appleby and two offshore service providers — one based in Singapore — were released by the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ). But unlike the 11.4 million files in Panama Papers released two years ago, which shocked the world to learn about the technically “legal” tax havens being used for illegal purposes, including fraud, tax evasion, and evading international sanctions, the Paradise Papers — named after their idyllic locales — have elicited comparatively little comment.
Maybe it is because the 119-year-old British firm Appleby was more discriminating in its choice of elite clients than Mossack Fonseca of the Panama Papers fame. Or maybe the latter created a more cynical global reading public, which is no longer surprised at the elites exhorting them to pay taxes to fund their governments’ activities while they ferret away their income in the off-shore tax havens to avoid paying their share of taxes.
Ironically, the latter invariably enjoys a much higher proportion of their governments’ largesse. Take the Queen of England, for instance, who has a private net worth (exclusive of all those palaces, etc) of £415 million and an annual income of £76 million. She also engaged a tax haven to avoid paying taxes, even though she is not compelled — like the ordinary British citizen — to pay those taxes.
As was revealed by the Panama Papers, the offshore tax-avoidance game works by utilising the services of offshore companies located in jurisdictions that do not impose any/minimal taxes on their operations and funds deposited there. London is home to the majority of the tax-evading facilitators because England makes it so easy for shell companies to be registered. Typically, because these companies utilise a bewildering number of paper trusts to hide the identities of the owners of the wealth, they are also used by money launderers, drug traffickers, kleptocrats, as well as big and respectable corporations, according to the ICIJ. In so doing, they deny billions to their national treasuries.
For instance, the sportswear giant Nike, with US billion in global sales, used a Dutch loophole to reduce its tax rate in Europe to just two per cent, compared with a 25 per cent average for European companies. Apple, the world’s largest company in revenues, had already moved to low-tax jurisdiction Ireland to minimise its tax base, but when the latter amended its tax laws in 2015, Apple transferred its cash holdings – now totalling US2 billion – to the British Channel Islands.
Following the Paradise revelations, the EU has now followed the lead of the OECD to call for compilation of a list of tax havens that can then be blacklisted. This, however, is very unlikely to occur because of the power of the players in the shell game. PM Theresa May of Britain, which is the mother of tax havens via its City, has already refused to provide a list.
The US, which also allows massive amounts of global wealth to be hidden from the taxmen of other countries, in its low-tax states of Delaware and Nevada, is also unlikely to budge. India, in the meantime, which has long waged a search for “black money”, has formed an investigative team to inquire into the 714 names, including that of superstar Amitabh Bachchan, which surfaced in the Paradise Papers.
In the meantime, small countries such as Guyana are on the receiving end of tremendous pressures from these same countries to go after financial transactions that may be covers for money laundering and financing of terrorists. Domestically, Finance Minister Winston Jordan and the Guyana Revenue Authority (GRA) have also been intensifying their efforts to increase their collection of taxes. If the Panama Papers, and now the Paradise Papers, are any guide, they are simply encouraging locally generated funds to be hidden in the off-shore havens to escape our inordinately high local corporate and personal tax rates.
