In 2013 the entire BJP campaigned for bringing black money deposited in Swiss Bank, it’s been more than seven years forget about bringing back black money but BJP has almost forgotten their narrative of so-called black money and corruption. Now, this Panama Papers has been in trend on social media and has hit headlines of major newspapers and news channels. However, for some people, the information is just too difficult to understand. A few years back the German Süddeutsche Zeitung started to publish articles based on 11.5 million leaked documents from the Panama law firm Mossack Fonseca that helped some of the world’s wealthiest people — including politicians, athletes and business moguls — establish offshore bank accounts.
The Süddeutsche Zeitung said its reporters had obtained the documents from a confidential source and shared the files with other media organizations, like The Guardian and the International Consortium of Investigative Journalists. Since then, the Panama papers are made news but so far there is no stringent investigation or conclusion drawn on this issue.
There’s a difference between tax evasion — illegally refusing to pay taxes you owe, and then taking advantage of secret accounts to try to hide the money and get away with it — and tax avoidance, which is hiring clever people to help you find and exploit legal loopholes to minimize your tax bill. Panama is a country with no corporate income tax. People set up their companies here to avoid tax. Tax avoidance is an inevitable feature of any tax system, but the reason this particular form of avoidance grows and grows without bounds is that powerful politicians in powerful countries have chosen to let it happen.
As the global economy has become more and more deeply integrated, powerful countries have created economic “rules of the road” that foreign countries and multinational corporations must follow in order to gain lucrative market access. Establishing some kind of minimum global standard of taxation of corporate and investment income hasn’t been done because it hasn’t been a political priority.
The leak of the Panama Papers is significant in part because of the specific information the documents contain, but more broadly because they draw attention to what “everyone knows” and may put public pressure on the powers that be to do something about it. Also, while holding money in offshore companies is not illegal, evidence of wealth hidden for tax evasion, money laundering, sanctions-busting, drug deals or other crimes are worrisome.
Offshore bank accounts are located outside a client’s country of residence, usually in “tax haven” territories chosen because of financial and legal advantages. They can be used to squirrel money away from the oversight of national banking systems, evading regulatory oversight or tax obligations.
Companies or individuals often use shell companies – set up purely as a vehicle for financial transactions and initially incorporated without significant assets or operations – to disguise ownership or other information about the funds involved. Panama, the Channel Islands and Bermuda are among more than a dozen small, low-tax locations that specialize in handling business services and investments of non-resident companies.
Companies or trusts can be set up in offshore locations for legitimate uses such as business finance, mergers and acquisitions and estate or tax planning, according to the global money-laundering watchdog, the Financial Action Task Force. The papers show that some Indians have set up offshore entities through the Panama law firm. Some of them floated offshore entities at a time when laws did not allow them to do so; some have taken a technically convenient view that companies acquired are not the same as companies incorporated; some have bunched their annual quota of remittances to subscribe to shares in an offshore entity acquired at an earlier date. Still, some others have received income earned abroad and deposited it in the entity to avoid tax. Some have opened a bank account to keep payoffs in government contracts or held “proceeds of crime” or property bought with money made illegally in Trusts/ Foundations.
Secrecy of information relating to the ultimate beneficial owner is guaranteed, with zero tax on income generated. In Panama, individuals can ask for bearer shares, where the owner’s name is not mentioned anywhere. It costs little or nothing to set up an entity here. The Registered Agent charges a few hundred dollars to incorporate an entity. It doesn’t take much time to incorporate one either. Companies are available off-the-shelf and can be registered in a couple of days.
Non-disclosure of an overseas asset will be of interest to authorities and regulators in India. Also, the Income Tax department will have to probe if there has been ’round tripping’ of funds i.e., routing of funds invested in offshore entities back to India, and where required, refer the cases to the Enforcement Directorate. It will also have to see if the offshore entities have declared all their incomes and assets to the Income Tax department, which will not be an easy task. So in-between for a change Panama issue will come and one day it will be forgotten the same as Swiss bank accounts.
