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Paradise Papers: Will ‘tax evaders’ be brought to justice?

Updated: Nov 09, 2017 18:38 IST

Here is an imaginary discussion on the revelations in the Paradise Papers released on Sunday by a collective of international journalists. These papers detail alleged tax evasion by elites around the world -- from rock musician Bono to Britain’s Queen Elizabeth II. Among the 180 countries named in the data, India ranks 19th in terms of the number of names. In all, there are 714 Indians in the tally.

Son: Mom, what are the Paradise Papers?

Mother: Simply put, they is a trove of 13.4 million corporate records or 1.4 terabytes of data from Appleby, a Bermuda-based law firm specialising in offshore legal services, and its spin-off company Estera. The files provide details about bank statements, emails and loan agreements from Appleby, a firm that helps its clients to take advantage of countries with low or zero-tax rates. So Paradise Papers are basically related to the tax affairs of some of the richest people and biggest corporations around the world. In addition, records also came from Asiaciti Trust, a Singapore-based offshore specialist, and 19 corporate registries maintained by governments. These records are often referred to as ‘tax paradises’

Son: OK. What did the Paradise Papers reveal?

Mother: They revealed offshore footprints of some of India’s major corporate players as well as of a few high-value individuals. The revelation brought to light an astounding scale of incorporating shell overseas companies to various ends. Internal communications show how a majority of these companies with offshore residency were wholly controlled from India.

Son: Is it illegal? How are Appleby and Asiaciti involved in it?

Mother: I think it is. As per documents, there are instances of assets of Indian companies being used to guarantee loans raised by offshore companies without disclosing it to Indian regulators. Changing ownership of offshore companies to actually change the ownership of shares held by them in Indian companies without paying taxes in India turns out to be another common malpractice. As to Appleby and Asiaciti, these two firms are among the “corporate army” that help companies and individuals set up businesses, make investments and carry out financial operations. Such firms usually specialise in law, chartered accountancy and banking.

Son: What steps is the government taking in this case?

Mother: A multi-agency panel of country’s top tax and financial crimes agencies will investigate leaked financial documents. The group led by Central Board of Direct Taxes (CBDT) chief Sushil Chandra comprises of officials from CBDT, the Income Tax Department, the Enforcement Directorate (ED), the Financial Intelligence Unit and the RBI among a few others. The panel will first “go through” the details of income tax returns filed by the Indian individuals and entities named and subsequently take action, in a case-to-case basis. The question is – will the panel be able to punish the tax evaders if there are any?

Son: How did it (revelation) actually take place?

Mother: First, German newspaper Suddeutsche Zeitung obtained data from Appleby and Asiaciti and shared it with the International Consortium of Investigative Journalists (ICIJ). Later a team of reporters of The Indian Express scanned the all documents that had an India connection. The Indian Express is a partner of the ICIJ.

Son: Will the ICJI reveal more?

Mother: I think it will. The ICIJ has promised that more information will be made public during this week, including “stories on strategies used by multinational corporations to shift profits to low-tax jurisdictions” and details of “private jets and yachts” owned by some of the world’s elite in offshore tax havens.

Son: Is it a case of tax evasion? What is the difference between tax avoidance and tax evasion?

Mother: First, let all the details come. Right now, I am not sure whether it’s a case of tax avoidance or tax evasion. The tax avoidance is the term used for firms and individuals using legal means to avoid or reduce their tax liabilities while the tax evasion involves the use of illegal means to avoid paying taxes or to pay lower amounts, and is an offence.

First Published: Nov 09, 2017 18:34 IST