Members' Research Service By / November 13, 2017

‘Paradise papers’ in a nutshell

The latest leak of tax-related documents, known as the ‘Paradise papers’, was made public on 5 November 2017. The results of a joint investigation are now being released in instalments. The papers provide additional evidence on the involvement of offshore law firms in tax optimisation practices.

© Thomas Klee / Shutterstock

Written by Cécile Remeur,

The latest leak of tax-related documents, known as the ‘Paradise papers’, was made public on 5 November 2017. The results of a joint investigation are now being released in instalments. The papers provide additional evidence on the involvement of offshore law firms in tax optimisation practices.

What are the Paradise papers?

The information comes from the articles published daily since 5 November 2017.

'Paradise papers' in a nutshell
© Thomas Klee / Shutterstock

Like the Panama papers, the Paradise papers are the result of a leak to the Süddeutsche Zeitung and a joint investigation by the International Consortium of Investigative Journalists ICIJ and its 95 media partners. The files relate mainly to an offshore law firm (Appleby), and a smaller trust company (Asiaciti) and company registries in 19 secrecy jurisdictions (which have no, or limited, practice of sharing information with other tax jurisdictions). They disclose numerous loan agreements, financial statements, emails, trust deeds and other paperwork spanning nearly 50 years.

Beyond the sometimes colourful headlines describing either individual or more general schemes, the leak features many of the same names as previous revelations related to global taxation issues. The locations and havens in the Paradise papers display a similar geography to that of previous leaks. The investigation explores the tax optimisation schemes that were set up using the advice and assistance of services providers like Appleby (intermediaries). They relate to the offshore (i.e. outside the home tax jurisdiction) activities of rich people, high net worth individuals (HNWI) and ultra HNWI (UHNWI), and multinational enterprises which shift their earnings and funds or their purchases through different tax jurisdictions to obtain a substantially reduced or zero liability. The amount of lost tax resources is difficult to assess, but is substantial.

Which tax problems do they highlight?

The underlying challenge is that, on one hand, globalisation and digitalisation enable money to move across borders with relative ease, but on the other hand there is no matching dimension to tax jurisdictions. The situations covered relate to tax optimisation, aggressive tax planning, tax avoidance (which is a priori legal, but may involve some risk-taking, contrary to tax evasion and fraud, which are illegal).

In addition, tax competition and the limited set of cooperation tools provided by international law create loopholes and inconsistencies, which tax optimisation uses. With the support of intermediaries and facilitators, tax optimisation schemes are adapted to stay ahead of regulatory provisions, namely by setting the tax residence accordingly. The offshore advice is provided by firms specialised in helping clients to move to low-tax jurisdictions, like Appleby in the present case.

Another element enabling such schemes to work is the opacity provided by certain structures (such as trusts and similar arrangements). This shields the ultimate beneficial owner (UBO) and makes it impossible to assign assets to taxpayers, allowing the UBO not to have these assets taken into account in their tax base in the jurisdiction in which their tax residence is located.

Reactions to the leaked documents

Globally, voices have condemned these practices, which are thought to be the tip of the iceberg within a regulatory context that has not yet implemented the latest changes, as the OECD Secretary-General pointed out. Calls for further action, namely for the adoption of a European tax haven list and the review of VAT loopholes that appear in the leak and for greater transparency, were issued after the first wave of revelations. Some Member States have already indicated that they will further look into the information.

Read this At a glance on ” ‘Paradise papers’ in a nutshell ” on the Think tank pages of the European Parliament.

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    The main problem is that such “free” finance escapes the control activity of individual Member States. It is the impact of unbridled competition in the fight for investment and investment in the individual Member States. This economic reality is used by political parties to attract voters to consolidate their position.

    The “VAT Revision” of VAT gaps in the EC focused on a carousel shop and a lost trader. This is the pressure of tax reports that are most common with these issues. The narrow, high level of specialization of customs and tax adminis- tration leads to the introduction of partial control measures. Of course, in various national policies, the struggle to attract investment at all costs is particularly important. This is quite a manifestation of a fierce competitive fight for investment, the collection of duties, taxes in the “Silky Road” project from China. Each country is ahead of the offer of benefits if the journey goes through their territory. However, no one has raised the issue of security and control of the imported goods, the way they control and comply with legal standards. Even the EC does not point out that the import route and the export of goods to Asia are rapidly changing. From the ports of Germany, Belgium and others, goods are moved to the railways – to many of the railways that will encounter the goods in the east of the EU. National governments refuse to communicate on such matters at all – fighting investment losses and customs and tax revenues on imports of goods from third countries. They promote this policy at all costs, resulting in an annual loss of € 499,000,000,000 on the import and subsequent distribution of goods from third countries. Details :

    Nebezpečie daňových rajov je hlavne v ich “dlhodobosti”. Výber najjemnejšej jurisdikcie v oblasti daní, hlavne výške zdanenia, kontrolnej činnosti štátu. Toto ponúkajú niektoré štáty pre pritiahnutie sídiel firiem ktoré sa na takejto optimalizácii podieľajú a majú z toho profit.

    Hlavným problémom je to, že vôbec takéto “voľné” financie uniknú kontrolnej činnosti jednotlivých členských štátov. Je to dopad nezdravej konkurencie boja o investícia a investovanie v jednotlivých členských štátoch. Túto ekonomickú skutočnosť využívajú politické strany na prilákanie voličov na upevnenie ich pozícii.

    “Revízia” DPH medzery sa v EK zamerali na karuselový obchod a stratený obchodník. Je to tlak daňových správ ktoré sa s uvedenými problematikami stretávajú najčastejšie. Úzka, vysoká špecializácia správcov ciel a daní zapríčiňuje zavádzanie čiastkových kontrolných opatrení. Samozrejme v rôznych národných politikách sa hlavne prejavuje boj o pritiahnutie investícii za každú cenu. Úplne sa to prejavuje v krutom konkurenčnom boji o investícia, výber cla, daní v projekte “Hodvábnej cesty” z Číny. Každý štát sa predbieha v ponuke výhod, ak uvedená cesta pôjde cez ich územie. Nikto sa však nevyjadril na otázku bezpečnosti a kontroly privezeného tovaru, spôsobu kontroly a dodržiavania zákonných noriem. Ani EK neupozorňuje na fakt, že sa rapídne mení trasa importov a následne aj exportov tovaru do Ázie. Z prístavov Nemecka, Belgicka a iných sa premiestňuje tovar na železnice – na mnoho železníc ktoré sa budú stretávať s uvedeným tovarom na východe EÚ. Národné vlády už vôbec o takýchto záležitostiach odmietajú komunikovať – boja sa straty investícii a príjmov z cla a daní pri dovoze tovaru z tretích krajín. Túto politiku presadzujú za každú cenu – dôsledkom je ročná strata 499 000 000 000 € pri dovoze a následnej distribúcii tovarov z tretích krajín. Podrobnosti :

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