The Pandora Papers expose offshore secrets in a less-than-flattering way. It is best to arrange your all your affairs appropriately. Here’s how. 

The International Consortium of Investigative Journalists (ICIJ) published on October 3, 2021 some spicey tales of offshore happenings by famous people in the Pandora Papers. This follows earlier scoops in the Panama Papers. We won’t repeat any of the names published as there is no evidence of any wrongdoing. 

What is the ICIJ?

The ICIJ says it is a U.S.-based nonprofit organization funded by donations with its own reporting team and a a global network of reporters and media organizations who work together. Their website invites whistle blowers to come forward. 

What does the ICIJ want?

The ICIJ says it collaborates on investigations that expose the truth and hold the powerful accountable.

What’s in the Pandora Papers?

The ICIJ say that nearly 12 million leaked files have uncovered financial secrets of 35 current and former world leaders, more than 330 politicians and public officials in 91 countries and territories, as well as cabinet ministers, ambassadors, fugitives, con artists and murderers. 

The leaked records apparently come from 14 offshore services firms from around the world that set up shell companies and other offshore “nooks” for clients often seeking to keep their financial activities in the shadows.

Does it matter?

The ICIJ says at least $11.3 trillion is held “offshore,” according to a 2020 study by the OECD. But the ICIJ admits it’s not possible to know how much of that wealth is tied to tax evasion and other crimes and how much of it involves funds that come from legitimate sources and have been reported to proper authorities.

Businesspeople who operate internationally apparently say they need offshore companies to conduct their financial affairs.

But the ICIJ says these affairs may amount to shifting profits from high-tax countries, where they are earned, to companies that exist only on paper in low-tax jurisdictions.  Using offshore shelters is especially controversial for political figures, because they might be used to keep politically unpopular or even illicit activities from public view.

Why the name Pandora Papers?

According to the ICIJ, the Pandora Papers provide details about tens of millions of dollars moved from offshore havens in the Caribbean and Europe into US states including South Dakota, that has apparently become a major destination for foreign assets. “As a citizen, I’m so sad that my state was the state that opened Pandora’s box,” a former lawmaker there told the ICIJ.

Comments – Large Groups:

The ICIJ focus seems to be on individuals more than companies. If so, the ICIJ may be performing a useful service if it is actually exposing corruption by individual leaders and officials. The ICIJ should clarify its purpose.

Also, the ICIJ seems to miss the aim of some corporate tax planning. A legitimate strategy of many multinationals is to hold intellectual property in offshore companies that sell products via websites in the internet cloud. Such strategies are only now starting to be targeted by the OECD’s proposed measures known as the Two Pillar tax package. Pillar 1 proposes to shift some taxable profit to countries where customers are located. Pillar 2 (strongly supported by the Biden administration) calls for a 15% global minimum tax rate. 

The two pillar package would only affect the largest multinationals with global revenues over EUR 20bn (Pillar 1) or EUR 750m (Pillar 2). Other income tax, VAT and sales tax changes are starting to affect many more e-commerce traders.

Comments – Everyone:

Other tax measures now impact multinational groups and e-commerce traders of any size in many countries. These typically include:

• VAT and GST (Goods and Service Tax) in many countries
• Sales tax in most US States following the Wayfair Case in the US Supreme Court
• Controlled Foreign Corporation (CFC) rules
• Transfer pricing rules
• General anti-avoidance rules (GAAR)
• Withholding tax rules on outbound payments
• Anti-money laundering rules
• Information exchange rules

To sum up:

Tax avoidance is getting harder, and using an offshore location is less relevant in many cases, leaked or not. Instead, onshore tax and grant incentives are gaining popularity.

Next Steps:

Please contact us if you need to discuss the above or any other matter.

Always consult experienced professional advisors in each country concerned – we can help arrange this.

leon@hcat.co

© 2021-2024