Pandora Papers Leak: Years after the leak of the Panama Papers, Pandora Papers made headlines after millions of documents related to the hidden world of offshore wealth collectively worth trillions of dollars were leaked to the International Consortium of Investigative Journalism (ICIJ).
Recently, the Centre has told the Parliament that numerous agencies are investigating the Indians associated with the Pandora Papers who have allegedly stashed their wealth offshore to evade tax.
“Some Indian names have been released in the media which are allegedly linked to the Pandora Papers Leak. The government of India has taken cognizance of the same and for the purpose of coordinated and speedy investigation, brought the Pandora Papers Leak under the umbrella of Multi-Agency Group (MAG), which has been constituted under the convenorship of the chairman, Central Board of Direct Taxes (CBDT), with Directorate of Enforcement (ED), Reserve Bank of India (RBI), Financial Intelligence Unit India (FIU) and Foreign Tax & Tax Research Division of CBDT as its members' agencies,” said minister of state for finance, Pankaj Chaudhary.
Also Read | List of people named in the Panama Papers
What are the Pandora Papers?
The Pandora Papers are the 11.9 million leaked documents from 14 companies in offshore tax havens with details of ownership of 29,000 offshore companies and trusts from Vietnam to Belize and Singapore. These documents point out the ownership of assets ‘settled’ in private offshore trusts and the investments including cash, shareholding, and real estate properties, held by the offshore entities. The ongoing investigation has the names of at least 380 people of Indian nationality.
Pandora Papers Leak: How was the Pandora Papers investigation carried out?
A global network of reporters and publication houses, the International Consortium of Investigative Journalism (ICIJ), launched a two-year effort to go through 11.9 million documents that were leaked to it.
Around 600 journalists from 150 media outlets around the world are a part of the ongoing investigation. The team of journalists verified the information from the 2.94-terabyte haul by cross-referencing it to public records across the world.
“The records include information about the dealings of nearly three times as many current and former country leaders as any previous leak of documents from offshore havens,” according to ICIJ.
Pandora Papers ICIJ: What does the investigation reveal?
The papers reveal how people have set up complex multi-layered trust structures for estate planning but are characterized by air-tight secrecy laws. The scrutiny of the papers reveals twofold objectives of setting up the trusts. These are (a) hiding real identities to make it next to impossible for the tax authorities to reach them (b) safeguarding their investments from creditors and law enforcers such as cash, real estate, and shareholdings.
What do you mean by trust?
A trust is an arrangement where the trustee holds assets on behalf of individuals/organizations that are to benefit from it. It is generally used to help large business families to consolidate their assets. The trust has a settlor, who sets up or creates a trust, a trustee, who holds the assets for the people as named by the settlor, and beneficiaries, to whom the benefits of the assets are passed on.
The Indian Trusts Act, 1882 mandates the setting up of trusts in India and recognizes offshore trusts as well. Businesspersons use them for genuine estate planning and set conditions for ‘beneficiaries’ to draw income distributed by the trustee or inherit assets after his/her death.
However, if trusts are used to evade taxes, protect wealth from law enforcers, insulate it from creditors to whom a huge amount of money is due, and at times to use it for criminal activities, they surely are illegal.
Why are offshore trusts set up?
Offshore trusts are set up due to the below-mentioned reasons:
1- Businesspersons set up private offshore trusts to distance themselves from their personal assets. Here the settlor doesn’t own the assets he places/settles in the trust and thereby insulates assets from creditors.
2- Given their complex structures, offshore trusts provide enhanced secrecy to businesspersons. The Indian Income Tax Department can only request financial investigation agencies or international tax authorities in offshore jurisdictions to get to the ultimate beneficial owners, a process where the exchange of information takes months.
3- In order to prevent their NRI children from being taxed on income, businesspersons transfer their assets to a trust. In this way, the children are only the beneficiary and are not liable to pay taxes on the income generated from the trust.
4- People fear that the estate duty, abolished during Rajiv Gandhi’s Prime Ministership in 1985, will be reintroduced. Thus, setting up trusts beforehand will help protect the younger generation from paying the death/ inheritance tax. It is to be noted that India doesn’t have a wealth tax now.
5- In a capital-controlled economy like India, people are allowed a maximum investment of $250,000 a year. To dodge this, businesspersons have turned to NRIs as they can remit $1 million a year in addition to their current annual income, outside India. Also, tax rates in India are higher than in overseas jurisdictions.
Other similar leaks
2016 Panama Papers has been the most significant offshore leak to date. It consisted of 2.6 terabytes of data which was leaked from the law firm Mossack Fonseca. The following year, the Paradise Papers were leaked which were from the offshore provider Appleby, founded in Bermuda. It consisted of 1.4 terabytes of leaked data.
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