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Clueless in tracking Panama funds

Clueless in tracking Panama funds
With the domestic authorities from the tax department to enforcement directorate girding up their loins to catch hold of tax evaders in their cocooned havens in the wake of the disclosure of celebrity Indians parking their funds in such opaque tax regimes, the outcome may not match the official missionary zeal. At the just concluded IMF-Fund bank meeting in Washington, the OECD Secretary General’s Report to G-20 Finance Ministers on update on tax transparency makes a dim and grim reading. The report concedes that the use of secrecy to evade taxes as well as to undertake other financial crimes continues to hurt global communities. 

Mentioning how progress has been “massive” with more than half a million taxpayers the world over disclosing their assets held offshore to the tax administration of their countries of residence, the OECD report glumly stated that Panama is one of only a few financial centres that have so far “refused to commit to the Common Reporting Standard (CRS) which provides for automatic exchange of financial account information between tax authorities (AEOI). Curiously and irksomely Panama to date remains “one of the rare financial centres which have not yet signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The massive leak of documents from the Panamanian law firm Mossack Fonseca in early April has rudely shaken genuine taxpayers world over as they poignantly held how tax havens are being used to hide ill-gotten income so as to preclude taxes by the plutocrats. Stung by the revelations that the leak had smudged the reputations his legal firm commanded among the glitterati of the globe, Ramon Fonseca, co-founder of the company at the centre of the Panama Papers leak, said rather tongue-in- cheek that the focus on his company and country is unfair, adding that” I assure you there is more dirty money in New York, Miami, and London than there is in Panama”.  This is what an exasperated chief is expected to utter to turn the heat and the spotlight on the dubious distinction he had heaped on other financial centres of the world! 

Ever since globalisation and liberalisation of finance across the world had begun in the last decade of the last century, sunny places for shady people under the blue dome have sprung up to widen the internecine inequalities and inequities of the existing global economic order. It is true that Panama is not one among the willing signatories of the tax havens for transparency in tax matters being hammered out as the emerging architecture under the rich countries’ club, the Organisation for Economic Cooperation and Development (OECD). The Paris-based inter-governmental think tank of rich countries’ club is fostering a global transparency initiative to crack down on tax haven secrecy. Most havens have consented to participate and from 2017 will be able to partake of financial data automatically so that each can tax its taxpayers accordingly. But Panama is not keen on this initiative to share secrets with States on its clientele by refusing to participate seriously!  It is small wonder OECD Tax Chief, Pascal Saint-Amans dubs Panama “a jurisdiction that welcomes crooks and money launderers”. 

Still, global policy analysts argue that the OECD scheme is run on “a ridiculously weak transparency” norm:  information exchange on request. Here one cannot make even a blanket information requests to a tax haven, as one should ask only on a case-by-case! That means one effectively must perforce know the information one is looking for before one asks for it! Hence, precious little information flows through these narrow spigots from global forum designed to establish transparency in tax jurisdictions/havens.  If only global transparency in taxation efforts, if pushed  persistently,  might help governments for the first time to raise serious revenues from the estimated $21-32 trillion sitting offshore, according to  an expert on the issue Mr. Nicholas Shaxson.   

For India whose prominent citizens including heroes of the tinsel world, sports arenas, and corporate group with not a single politician to boot in the meretriciously majestic company in the Panama Papers leak, the position of the domestic authorities is quite unenviable. No doubt, immediately after the expose of the Panama Papers, the Prime Minister and the Finance Minister set up independent multi-member Committee drawn from the Central Board of Direct Taxes (CBDT), FTU, Foreign Tax and Tax Research Division and RBI and asserted that there is no holy cow for the government to protect if the tax dodgers are proven to have committed such an enormous economic offence. But this multi-member Committee may not get to the bottom of the truth as the Panama tax haven is a reluctant participant in the OECD’s scheme  and has its own client confidentiality and secrecy codes to stand by its shell companies and their absentee owners who had put their lazy money into the offshore financial tax outlets  . This holds true in India as well, but where there is a lack of clarity about the legality of buying offshore companies. This prevails notwithstanding the apex bank’s evolving guidelines on offshore remittances and investments since 2004. 

While the guidelines such as those of the Liberalised Remittance Scheme are specific to remittances availed of by residents to service various overseas requirements such as medical treatment, education and even for holidaying with family and extended family, they have been modified over time to allow the setting up of 100 percent subsidiaries and joint ventures within the limit of 2.50 lakh US dollars a year.   One of the few stipulations is that money cannot be sent to countries identified as “no cooperative”.   Considering the reluctance of Panama  to  actively cooperate with the evolving  transparency in tax under the OECD umbrella and  also  how tenuous and weak the proposal from the  OECD on this, it is no surprise that wily Indians find the Panamanian route a surefire strategy to live in clover as ever and forever, undisturbed by any upheavals such as the occasional leak as it had supervened in the case of the Panamanian legal firm that took its cache for safe-keeping.

Even as global efforts to bring transparency in tax issues may be a work in progress, the onus is on the Indian leaders and bureaucrats to make the tax rates low and the ecosystem efficient and clean. Wealth creation is important as building blocks of development and there should be enough spurs for capitalists in investing their fortunes within the country so that the benefits in the form of higher growth and employment and shared prosperity would enrich the country.  

Given the admission by the OECD Secretary-General that it would be naïve not to recognise the challenges pertaining to the difficulties of identifying beneficial owners of legal arrangements available and other efforts to promote opacity, both the global community and the domestic authorities working in concert should leave no stone unturned to plug the loopholes in the extant tax regime and render the rates simple, complexity-free so as to prevent tax-shopping by the rich and the mighty. 

(The views expressed are strictly personal.)
G Srinivasan

G Srinivasan

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