Pandora Leak: Riches Exposed
With the biggest ever leak, transactions of the Richie Richs of the world are exposed. What does it mean for us?
Have you heard of the story of Pandora’s box?
The Legend of Pandora’s Box has its roots in Greek mythology. It is said that when, out of sheer curiosity, Pandora opened a box given to her husband to care for, it unleashed the evil spirits of greed, jealousy, fear, and revenge.
Something similar has happened with the grand leak of “Pandora Papers.”
A team of more than 600 journalists led by The International Consortium of Investigative Journalists obtained 11.9 million confidential files. It is the biggest leak of all time.
Biggest leak? You mean a leak like this has happened in the past?
Yes. The last leak was called the Panama Leak. It happened in 2016. While there was just one source of information in the Panama Leak, the Pandora Leak draws information from 14 different sources.
What do these sources reveal?
The secretive money movements of the rich and powerful, from around the world, which help them save taxes, keep their wealth a secret and so much more.
130 billionaires, 35 world leaders, 330 politicians from over 200 countries have been named in the leak. From India, Sachin Tendulkar, Jackie Shroff, Anil Ambani are some top names that have come forth.
But, what’s all this fuss about? Why do we care about the money movements of the rich?
Because when the rich escape taxes that they lawfully owe to their government, the citizens are denied the money that can help in the development of the nation.
Though, not all transactions are illegal. Some of them are done within the four corners of the law. Even the Pandora leaks cannot establish which transactions are legal. But, legal doesn’t always mean that it was done with good intent.
The intent becomes questionable when the money is moved “elsewhere” to “escape” the rules laid down within the borders of your homeland. (Remember this: Escape and Elsewhere)
So, what’s the modus operandi?
Sometimes, wealthy people create companies, solely for the purpose of escaping rules. These companies are created elsewhere, i.e. in countries that offer lower tax, higher secrecy, and less compliance. Some countries (tax havens) allow this to attract businesses to set up shop in their territories. This is also called the ‘race to the bottom’.
So now, when a company in a high tax territory earns a lot of profits, they would have to pay a lot of taxes too. If only they could show some expenses that could just reduce their profits.
This can be done by making a company in foreign lands with low tax rates and then transferring the profit figure to foreign companies for some make-believe expenses.
This profit will now be the profit of the foreign company. And with the low and negligible tax rates, the company does not have to pay any taxes. Voilà!
Now, what if the wealthy have to bring this money back to their homeland?
The foreign company can simply loan back the amount. This way the money that goes out from a country, comes back in: without paying any taxes. This technique is called ‘round tripping’.
Easy peasy? Well, had it been so easy, everyone would be doing this no?
The tax laws have several in-built hurdles which don’t let these transactions happen with so much ease. For different types of profits, countries have treaties with each other that determine which country will collect tax. The folks who create the master plan to decorate transactions, determine the country where the dummy entity should be formed, the types of transactions to be shown, and other things to make the transaction look genuine. There are several schemes that can be devised to save taxes and evade the eyes of the taxmen.
But, the cost of saving these taxes is so high that only the wealthy can really afford to do so. This further widens the gap between the rich and the poor. As per a 2020 study, at least $11.3 trillion is held offshore.
Now, this had to end somewhere, right?
And so, US President Joe Biden has been rallying for a global tax. 130 countries that make up more than 90% of the world’s economy have signed the Paris OECD statement to implement a minimum tax of 15%. This is an effort to halt the race to the bottom, meaning no country can charge tax lower than 15%.
This move will make moving the money elsewhere unattractive for all.
But as the past suggests, the rich have managed to find loopholes regardless of how water-tight the laws have been. Will this time be any different? Can the Pandora Box ever be closed?
Only time will tell... until then, ReadOn.
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