Tax thieves exposed again - 'Pandora Papers Leak'

The huge no. of politicians and celebrities stashing wealth abroad to evade taxes is exposed - Pandora leaks

 Tax thieves exposed again - 'Pandora Papers Leak'

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• The story: The world knows that its super-rich stash away their wealth, to avoid legal taxation. The world also knows that like cancer, this disease is very widespread. Yet, it takes a global group of investigative journalists (the International Consortium of Investigative Journalists (ICIJ) – an ensemble of 600 journalists from 150 media outlets in 117 countries) to expose the high and mighty. It happened with Panama papers leak, and then the Paradise eoisode, and in 2021 it was the Pandora leak.
• Indian names: While the "Pandora Papers leak" has thousands of names, several prominent Indian names too figure. There are over 300 Indian names in the leak, including over 60 prominent ones like Anil Ambani, Vinod Adani, Jackie Shroff, Kiran Mazumdar-Shaw, Niira Radia, Bharat Ratna Sachin Tendulkar and Congress member Satish Sharma, etc.

1. The Pandora Papers are 11.9 million leaked files from 14 global corporate services firms which set up about 29,000 off-the-shelf companies and private trusts.
2. The ICIJ found that 35 heads of state and government and more than 300 politicians have set up offshore structures and trusts in tax havens from the British Virgin Islands, Seychelles, to Hong Kong and Belize.
3. The govt. said it will set up a multi-agency group headed by the Central Board of Direct Taxes (CBDT) chairman, with representatives from the Enforcement Directorate (ED), the Financial Intelligence Unit and the Reserve Bank of India, to keep a tab of the phased disclosures from the Pandora Papers indicated by the International Consortium of Investigative Journalists (ICIJ) website.

• What are Trusts: A trust is a fiduciary arrangement where a third party, referred to as the trustee, holds assets on behalf of individuals or organisations that are to benefit from it. It is not a separate legal entity, but its legal nature comes from the ‘trustee’. At times, the ‘settlor’ appoints a ‘protector’, who has the powers to supervise the trustee, and even remove the trustee and appoint a new one.

1. The Indian Trusts Act, 1882, gives a legal basis to the concept of trusts. Indian laws recognise the trust as an obligation of the trustee to manage and use the assets settled in the trust for the benefit of ‘beneficiaries’. India also recognises offshore trusts.
2. Off-the-Shelf Company - An 'off-the-shelf' company or ready-made company is a pre-registered limited company, however, it has never been traded. An 'off-the-shelf' company is ready for immediate use and can be purchased after paying a certain cost for it.

• Learning from the expose: The Pandora Papers reveal how trusts are used as a vehicle in conjunction with offshore companies set up for the sole purpose of holding investments and other assets by business families and ultra-rich individuals. Such trusts can be set up in known tax havens which offer relative tax advantages, as in places like Samoa, Belize, Panama, and the British Virgin Islands.

1. They expose how the super-rich set up complex multi-layered trust structures for estate planning, in jurisdictions which are loosely regulated for tax purposes, but characterised by air-tight secrecy laws.
2. Businesses have created a new normal after countries have been forced to tighten the laws on such offshore entities with rising concerns of money laundering, terrorism funding, and tax evasion. The Panama and Paradise Papers dealt largely with offshore entities set up by individuals and corporations respectively.

• Why set up Trusts Overseas: Primarily for secrecy, separation and savings. They offer a lot of secrecy because of stringent privacy laws in the jurisdiction they operate in. Businesspersons set up private offshore trusts to project a degree of separation from their personal assets. Businesspersons avoid their Non-resident Indians (NRI) children being taxed on income from their assets by transferring all the assets to a trust.
• Estate Duty Eventuality: There is a pervasive fear that estate duty, which was abolished back in 1985 will likely be re-introduced soon. Setting up trusts in advance will protect the next generation from paying the death/inheritance tax, which was as high as 85% in the more than three decades after its enactment (The Estate Duty Act, 1953).
• Capital account issues: India is a capital-controlled economy. Individuals can invest only USD 2,50,000 a year under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). To escape this limit, businesspersons have turned to NRIs, and under Foreign Exchange Management Act, 1999, NRIs can remit USD 1 million a year in addition to their current annual income, outside India. The tax rates in overseas jurisdictions are much lower than the 30% personal Income-Tax rate in India
• Problems in Indian taxation: There are some grey areas of taxation where the Income-Tax Department is in contest with offshore trusts.

1. After the "Black Money (Undisclosed Foreign Income and Assets) Act" and the "Imposition of Tax Act, 2015" came into existence, resident Indians have to report their foreign financial interests and assets. But NRIs are not required to do so.
2. The I-T Department may consider an offshore trust to be a resident of India for taxation purposes if the trustee is an Indian resident. In cases where the trustee is an offshore entity or an NRI, if the tax department establishes the trustee is taking instructions from a resident Indian, then too the trust may be considered a resident of India for taxation purposes.

• What government does: There are many laws in operation - (i) The Fugitive Economic Offenders Act, 2018, (ii) The Central Goods and Services Tax Act, 2017, (iii) The Benami Transactions (Prohibition) Amendment Act, 2016, (iv) The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, and (v) Prevention of Money Laundering Act, 2002.

1. As part of international cooperation, there is the "Double Taxation Avoidance Agreements (DTAAs)". India is proactively engaging with foreign governments with a view to facilitate and enhance the exchange of information under Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions.
2. Then there is the "Automatic Exchange of Information". India has been a leading force in the efforts to forge a multilateral regime for proactive sharing of financial information known as Automatic Exchange of Information which will greatly assist the global efforts to combat tax evasion.

• FATCA: The "Foreign Account Tax Compliance Act of USA" also applies, as India has entered into an information sharing agreement with the USA under the act.
• Oxfam demands: Rights group Oxfam India called for immediate action by authorities and abolishing tax havens following the expose of the Pandora Papers. It said that tax havens cost governments around the world $427 billion each year. Developing countries are hardest hit, proportionately. Corporations and the wealthiest individuals that use tax havens are outcompeting those who don't. Abolishing tax havens can go a long way towards ensuring that government actually have the access to tax revenue they need to fund quality public expenditure.
• EXAM QUESTIONS: (1) Explain the scope and impact of the expose by PANDORA paper leaks. (2) What happens when the rich and powerful avoid paying due taxes in their parent jurisdiction? How can governments tackle it? (3) Why would a celebrity like Bharat Ratna Sachin Tendulkar steal taxes (allegedly as per Pandora leaks)? Explain.

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