Pandora Papers

 

Pandora Papers?

The Pandora papers investigation is a leak of almost 12 million documents that reveals hidden wealth, tax avoidance and, in some cases, money laundering by some of the world's rich and powerful. It is the world’s largest ever journalistic collaboration under the International Consortium of Investigative Journalists (ICIJ) involving more than 600 journalists from over 150 media outlets in 117 countries.

There are at least 380 persons of Indian nationality in the Pandora Papers. Of these, The Indian Express has so far verified and corroborated documents related to about 60 prominent individuals and companies.

 

 

 

What does it unveil?

The Pandora Papers reveal how the rich, the famous and the notorious, set up complex multi-layered trust structures for estate planning, in jurisdictions (tax havens) which are loosely regulated for tax purposes, but characterized by air-tight secrecy laws.

This is particularly in jurisdictions that are loosely regulated for tax purposes, but characterized by air-tight secrecy laws.

The purpose for which trusts are set up are many is two-fold:

Tax-avoidance - to hide their real identities and distance themselves from the offshore entities so that it becomes near impossible for the tax authorities to reach them and

Tax evasion - to safeguard investments — cash, shareholdings, real estate, art, aircraft, and yachts — from creditors and law enforcers.

Pandora v/s Panama v/s Paradise papers

The Panama and Paradise Papers dealt largely with offshore entities set up by individuals and corporates respectively.

The Pandora Papers investigation shows how businesses disguised as Trusts have created a new normal with rising concerns of money laundering, terrorism funding, and tax evasion.

 

Trusts?

A trust can be described as a fiduciary arrangement where a third party, referred to as the trustee, holds assets on behalf of individuals or organizations that are to benefit from it.

It is generally used for estate planning purposes and succession planning. It helps large business families to consolidate their assets — financial investments, shareholding, and real estate property.

 

Is Trust Legal in India?

The Indian Trusts Act, 1882, gives legal basis to the concept of trusts. While Indian laws do not see trusts as a legal person/ entity, they do recognize the trust as an obligation of the trustee to manage and use the assets settled in the trust for the benefit of ‘beneficiaries’. India also recognizes offshore trusts i.e., trusts set up in other tax jurisdictions.

 

If Legal? Why Investigate?

There are legitimate reasons for setting up trusts and many set them up for genuine estate planning. A businessperson can set conditions for ‘beneficiaries’ to draw income being distributed by the trustee or inherit assets after her/ his demise. But trusts are also used by some as secret vehicles to park ill-gotten money, hide incomes to evade taxes, protect wealth from law enforcers.

 

Why overseas trusts?

Overseas trusts offer remarkable secrecy because of stringent privacy laws in the jurisdiction they operate in. The key tacit reasons why people set up trusts are:

Maintain a degree of separation: Businesspersons set up private offshore trusts to project a degree of separation from their personal assets.

Hunt for enhanced secrecy: Offshore trusts offer enhanced secrecy to businesspersons, given their complex structures. The Income-Tax Department can get information only with the financial investigation agency or international tax authority.

Avoid tax in the guise of planning: Businesspersons avoid their NRI children being taxed on income from their assets by transferring all the assets to a trust. Further, the tax rates in overseas jurisdictions are much lower than the 30% personal I-T rate in India plus surcharges, including those on the super-rich (those with annual income over Rs 1 crore).

Prepare for estate duty eventuality: There is pervasive fear that estate duty, which was abolished back in 1985 when Rajiv Gandhi was PM, will likely be re-introduced soon. Setting up trusts in advance, business families have been advised, will protect the next generation from paying the death/ inheritance tax, which was as high as 85 per cent.

Flexibility in a capital-controlled economy: India is a capital-controlled economy. Individuals can invest only $250,000 a year under the Reserve Bank of India’s Liberalized Remittance Scheme (LRS). To get over this, businesspersons have turned NRIs, and under FEMA, NRIs can remit $1 million a year in addition to their current annual income, outside India.

The NRI angle: Offshore trusts, as noted earlier, are recognized under Indian laws, but legally, it is the trustees — not the ‘settlor’ or the ‘beneficiaries’ — who are the owners of the properties and income of the trust. An NRI trustee or offshore trustee taking instructions from another overseas ‘protector’ ensures they are taxed in India only on their total income from India.

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https://indianexpress.com/article/explained/why-do-the-pandora-papers-matter-7550033/

https://www.bbc.com/news/world-58780561

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