Fighting Tax Evasion

What is the issue?

• ‘International Consortium of Investigative Journalists’ recently released documents called ‘Paradise Papers’.
• While this will kick off enquiries worldwide, bringing back money secreted overseas will be tough.

What are Paradise Papers?

• The Paradise Papers consists of 7 million documents that had leaked form a law firm in Bermuda & its associate in Singapore.
• But the leaks span for more the 50 years, and many transactions had taken place years ago, when regulations were different.
• Besides, the origins of transactions are difficult to trace as a thick web of shell companies are usually employed to gain anonymity.
• Hence, despite the names of 714 Indians featuring in the Paradise Papers, it would be quite difficult to prove wrongdoing.

Why are difficulties?

• Clever use of tax heavens by tax evaders effectively shelters them.
• Notably, many of the transactions could also be legal, with entities simply exploiting loopholes in the tax structures of countries.
• The Multi-Agency Group constituted to investigate the Panama Papers found that of the 426 cases, 279 were non-actionable.
• This was either due to non availability of a specific irregularity or the lack of access to the person or entity in question.

What are the measures being taken?

• The Indian government has enabled a series of changes to laws to check tax evasion through tax havens.
• Indo-Mauritius ‘Double Tax Avoidance Agreement - DTAA’ was tweaked to make investments through Mauritius liable to capital gains tax.
• The ‘General Anti Avoidance Agreement’ has been implemented which makes innovative tax arrangements liable to scrutiny.
• Becoming a member of the OECD’s ‘Base Erosion and Profit Shifting’ (BEPS) agreement is also a positive move.
• While such measures will help curtail future tax losses, bringing back money that has already moved overseas will be difficult.

How can money be brought back?

• It’s only when information sharing is seamless, across jurisdictions, that this money can be identified or brought back.
• Calling for a blacklist of tax havens that refuse to cooperate with other countries on information-sharing could help a little.

Source: Business line