Capital suggestion
What’s a tax haven? A tax haven is a “country that offers foreign individuals and businesses little or no tax liability [plus] little or no information to foreign tax authorities.” Tax havens are about ‘stashing money without scrutiny’ and are therefore referred to as ‘secrecy jurisdictions’ or ‘sunny places for shady people’. How many tax havens are there? Around five dozen or so.
What’s an offshore company? A “firm registered or incorporated outside the country where it has its main offices and operations or where its principal investors reside”. Owners of offshore companies are estimated to have hidden assets worth $32 trillion.
Who needs an offshore company? One, anyone who wants to avoid or evade taxes. Two, anyone who wants to hide assets. Only those “turn to offshore companies who have no valid answers about the source of their funds”. An offshore company is mostly about concealing assets (on January 25, the Supreme Court disqualified MNA Justice (r) Iftikhar Cheema for concealing his assets).
What’s the primary purpose behind individuals registering an offshore company? An offshore company has nothing to do with actually conducting business. The primary purpose is secrecy – to hide assets already earned. The IMF estimates that $200 billion is siphoned off from developing countries every year. Pakistan’s share in the $200 billion being stashed away is estimated to be between $3 billion to $6 billion a year.
What’s the purpose of an inquiry commission? To inquire is to “ask for information from someone”. Inquiry commissions are established either to dig out facts or to verify them. The Panama Papers is actually an exposition of facts – facts about 215,000 offshore companies belonging to 14,000 clients. To be certain, there’s nothing in the Panama Papers that needs to be enquired into. An inquiry commission in Pakistan is bound to be a complete dead-end.
How about a ‘forensic audit firm’? A complete dead-end once again. No tax haven worth its salt would release even a minor detail to an audit firm. The only institution that has the capacity to make a picture out of dots in Panama, British Virgin Islands and London is the World Bank’s STAR Initiative (Stolen Assets Recovery Initiative).
What is layering? Layering is ‘bookkeeping gymnastics’ whereby assets owned by offshore companies are given additional layers of secrecy (by registering even more offshore companies and vesting the ownership of one offshore company in another offshore company along with the use of bearer shares).
Is there a need to verify facts exposed under Panama Papers? In almost all cases none of the parties exposed have challenged the facts exposed under the Panama Papers. The facts in the Panama Papers are being exposed by 400 journalists belonging to 107 media organisations in more than 80 countries.
Is there more to come? In 1971, the Pentagon Papers leaked to the New York Times comprised 7,000 pages the equivalent of perhaps 20 megabytes. In 2010, WikiLeaks published Cablegate, 1.73 gigabyte. The Panama Papers is 2.6 terabytes; never in human history has there been a leak this big. What we have seen so far is just the tip of the iceberg.
Is there more to come? Data released so far is from just one company – Mossack Fonseca. There are some five dozen tax havens around the world and each tax haven has dozens of such companies. We may, however, never hear about what’s hidden within other such companies located in other tax havens.
Once again, only those “turn to offshore companies who have no valid answers about the source of their funds”. Will the Panama Papers become a catalyst for change? For Pakistan, this is an opportunity to clean our system.
The writer is a columnist based in Islamabad. Email: farrukh15hotmail.com
Twitter: saleemfarrukh