On April 3, 2016, came to light, the Panama Leaks. Some 2.6 TB of data from a Panamian corporate service provider
Mossack Fonseca had been anonymously provided to German newspaper Süddeutsche Zeitung. These documents, nearly 12 Million in number are being analysed and released to the public by the
International Consortium of Investigative Journalists. The documents provide list of over two hundred thousand offshore corporations along with the identities of their directors.
The list of names is a collection of the rich and the famous and the powerful from across the world. The initial names have already created a global storm. They are being accused of parking their money in tax havens through shell corporations and avoiding paying tax on their wealth.
Now we come to the subject of today’s BlogNLearn. What are Shell Companies?
A Shell Company is a non-trading company used as a vehicle for various financial manoeuvres or kept dormant for future use in some other capacity. These do not have any assets or operations of their own. Some shell companies are the remnants or "shells" of companies which have wound up operations.
While shell companies are not illegal, they have been often used as vehicles for routing money illegally. Shell companies have been created to money laundering and tax evasion. Many a times they just a front, while the real owners remain hidden. Many shell companies have small offices just for address. Hence are also referred to as letterbox companies. These companies are mostly registered in offshore financial centres or tax havens.
A Tax Haven is country with very low or zero taxes in certain regards. They also provide a great deal of financial secrecy. Thus attracting foreigners who do not want to have their money taxed in their own country at higher rates. Most of the tax havens are small countries and territories. Financial secrecy generates a lot of cash flow into the country without having to build any infrastructure.
The Panama papers have provided an explosive list of names, politicians, sports stars, business folks, movie stars. More names are expected to tumble out while the entire database is scanned. There could be large repercussions in some parts of the world (e.g. Iceland) while others would go about business-as-usual (e.g. Russia). Not all individuals named would have done something illegal. Although we have a tendency to paint everyone with the same brush.
The papers do highlight the discrepancies which exist in taxation systems across the world and how some are able to exploit it for their benefit. Given the increased globalization, it does call for a more uniform financial systems across the world. Although something of this kind is unlikely to happen at one go.
If the taxation systems across the world undergo reforms, maybe something good would have come out of the Panama papers leak.
Further Reads
