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The investigation of the International Consortium of Investigative Journalists (ICIJ) known as ‘Pandora Papers’ focused on the secret finances of around 300 public officials from more than 90 countries. But what is wrong with tax havens? We explain it to you.
From the same creators five years ago, the leak known as ‘Panama Papers’ now reaches the international stage ‘Pandora Papers’. Two different investigations, but with a similar objective and result: to expose how the rich and powerful hide money in ways that the authorities cannot detect.
The ‘Panama Papers’ uncovered in 2016 more than 11 million documents from the Panamanian law firm Mossack Fonseca to show that personalities from all over the world hired the services of that firm, now defunct, to create offshore companies allegedly to evade taxes.
In this new investigation, the accounts of presidents and former presidents, ministers, judges, mayors, politicians, businessmen and even artists, were for months under the scrutiny of the International Consortium of Investigative Journalists, which had access to the confidential data of 14 specialized firms in tax havens.
The finances of 35 heads of state and 130 billionaires were laid bare. But, what is an ‘offshore’ company? How do tax havens work? Is it legal to set up a company in a tax haven? What is the difference with tax optimization?
What is an ‘offshore’ company?
Created many times with a simple email and installed in a country lacking adequate banking supervision, an ‘offshore’ company has one main objective, which varies depending on who does it: earn money or evade taxes.
These ‘ghost’ firms are constituted in a tax haven, sometimes aided by a system of front men, with which the investor avoids leaving traces of his true identity.
With the creation of a bank account, products of all kinds such as real estate, private jets or even yachts can be purchased with the utmost discretion.
NEW: #PandoraPapers reveals the inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else.
Brought to you by ICIJ and 600+ journalists, the largest collaboration in journalism history.
https://t.co/qXMuUcqPc4
– ICIJ (@ICIJorg) October 3, 2021
What is a tax haven?
Tax havens exist all over the world and are characterized by offering little or no taxes and little supervision, which is attractive to those who seek to optimize their tax expenditures as much as possible.
Some of the best known are Panama, British Virgin Islands or Belize. There are also state-territories such as Hong Kong and Singapore or European countries, with Switzerland, Cyprus and Luxembourg at the top. In the United States, South Dakota, Nevada and Delaware are considered tax havens.
The Organization for Economic Cooperation and Development (OECD) believes that at least 27% of Latin America’s wealth is held abroad, a portion higher than the average for Asia (4%), Europe (11%) or United States (4%).
In a report this year, the Economic Commission for Latin America and the Caribbean (ECLAC) quotes the economist Gabriel Zucman to highlight that in 2014 there were around 7.6 trillion dollars invested in tax havens, which is equivalent to 8% of global household wealth.
In the case of Latin America, the expert estimates that for that year there were 700,000 million dollars in tax havens, which causes a loss of income due to tax avoidance of around 21,000 million dollars annually.
An activity that is not illegal (not ethical)
The use of offshore companies is not illegal nor is it in itself evidence of wrongdoing. However, news organizations that participated in the investigation said those transactions could be used to conceal wealth from tax collectors and other authorities.
In fact, the subtlety of these operations permanently flirts with legality, in what is known as tax optimization, very different from money laundering and tax evasion.
Some of those named in this investigation have come out to defend themselves, using precisely that argument. For example, the Colombian singer Shakira assured that the companies that she opened in the British Virgin Islands, revealed by the investigation, were “duly declared” to the Spanish Treasury, so they are “totally transparent”.
They do not think the same Susana Ruiz, director of fiscal policy of Oxfam International, quoted this Monday on the organism’s website: “Tax havens cost governments around the world 427,000 million dollars each year.”
What are the authorities doing?
The most heated discussion this year within the Organization for Economic Cooperation and Development (OECD) has been precisely the imposition of a 15% tax on multinationals.
The objective is to discourage the use of tax havens, as well as to adapt the way in which their juicy profits are allocated to ensure that they are taxed where they actually operate and not where they are incorporated.
The ICIJ found links between almost 1,000 companies in offshore paradises and 336 high-level politicians and public officials. More than two-thirds of the companies were established in the British Virgin Islands.
With Reuters, EFE, AP
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source https://pledgetimes.com/pandora-papers-the-keys-to-understanding-why-tax-havens-are-so-questioned/
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