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Fwd: The secret worldwide network of tax evaders. 612 Indian illicit wealth holders

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  • Thiagarajan Arunachalam
    ... From: *Narendra Ch* http://bharatkalyan97.blogspot.com/2013/04/the-secret-worldwide-network-of-tax.html APR 4
    Message 1 of 1 , Apr 5, 2013

      ---------- Forwarded message ----------
      From: Narendra Ch


      The secret world of tax havens

      An anonymous source has provided extensive insights into a worldwide network of tax evaders. Media in more than 30 countries are currently sifting through a mountain of data.

      260 gigabytes of documents - that's the printed equivalent of 500,000 copies of the Bible. This is the massive amount of data that was passed on more than a year ago by an anonymous whistleblower to the International Consortium for Investigative Journalism (ICIJ) in Washington. More than two million emails and other confidential documents sketch a picture of a dubious shadow world. More than 130,000 people from 170 countries are alleged to have secreted their money in tax havens. Analyzing the data is a mammoth task that is still nowhere near completion.

      Challenge for computer forensics experts

      The anonymous source secretly lifted the data from two company servers and transferred it via the Internet. "Unfortunately, in order to protect the source, it's not possible to say anything more about exactly how this was done, but it's clear that there was a substantial leak," says German data journalist Sebastian Mondial, who is one of those analyzing the material. This means that at a certain point these companies' secrets were accessible in such a way that someone was able to make a copy, Mondial explained in an interview with DW.

      Germany's Süddeutsche Zeitung daily writes that much of the data was not very well organized, and that some of the documents first had to be converted so they could be read by machine. "We were lucky that we had some specific forensic software that's usually used by criminologists," says Mondial. This, he explains, made it possible to scan these databases and examine them to find out things like what connections existed between pieces of data, when documents were created, when emails were sent and who received blind copies of emails.

      The Virgin Islands are just one of many tax havens

      Havens of tranquility and tax evasion

      The British Virgin Islands, the Cook Islands, the Seychelles, Panama: All of them have something very attractive to offer to certain companies and private individuals - anonymity. "'Come to us and you won't have to worry about the tax office finding out.' This is the kind of slogan these so-called offshore islands use to attract rich people," says Thomas Eigenthaler from the German financial managers' union (DSTG). He explains that the tax evasion is made easier by the fact that the taxpayers don't have to deal with it themselves. A whole industry has sprung up to advise them and offer tailor-made solutions. Sebastian Mondial adds that many tax havens don't even keep any kind of register with information on company owners or capital. 

      The EU estimates that every year around one billion euros in tax revenue is lost through tax evasion or tax avoidance. According to a study by the non-governmental organization Tax Justice Network, a fortune estimated at between 21 to 32 billion dollars is stashed away in tax havens. By comparison, in 2011 the gross domestic product of the United States was around 15.1 billion dollars. The figure doesn't even include non-financial assets and gold held abroad, foreign properties, or luxury yachts sailing under foreign flags.

      "According to my colleagues working on the project, there's a particularly clever trick they pull when someone is sued by an offshore company. They agree on a settlement, and the complaint is dropped," explains Sebastian Mondial. Then the settlement money, which, as part of a lawsuit, does not have to be taxed, is transferred to the offshore account.

      There are other tricks, too. For example, a company can set up a subsidiary in a tax haven to deal with its foreign operations, thereby avoiding paying tax on foreign profits.

      Offshore firms often are little more than a letter box

      Is Germany also a tax haven?

      Private individuals resident in Germany have to pay tax of up to 45 percent on their earnings. Companies whose main office is in Germany have to pay corporate tax and business tax. But in Germany too there are loopholes that the cunning can take advantage of.

      "If a German-based business seeks advice from an offshore company, the offshore company issues an invoice, and the money is transferred. To the tax office, this looks like a perfectly normal transaction," says Mondial. However, it means that the money has been moved out of the country, and no further taxes will be paid on it. According to German law the burden of proof lies with the tax office, not with the companies.

      And this burden is too heavy for the German system to bear, Eigenthaler says: "We don't have the capacity to do all the checks. Sometimes we wait years for an answer from overseas authorities. But there's also a lack of political will. I always have the sense that people at the top are being too lax in their pursuit of tax evaders."

      Furthermore, the influence of the German state ends at the border. "If money is transferred out of Germany to another country, the German treasury has no way of locating it - unless Germany has a tax agreement with the relevant state that includes the exchange of information," Eigenthaler explains. But why would somewhere like the Cayman Islands have an interest in torpedoing its own business model by signing such an agreement? And as Eigenthaler points out, even if an agreement were reached, it doesn't mean it would necessarily be followed to the letter.

      The data leak and its consequences

      For years now international organizations like the OECD (Organization for Economic Cooperation and Development) have been trying to establish measures against tax fraud and standardize regulations. According to the OECD, progress has been made since a blacklist was published in 2009 naming four countries as tax havens. 700 agreements were reached regarding the exchange of information, and around 40 judicial verdicts have led to some changes in the law.

      Might the revelations contained in these databases be of assistance in the international fight against tax fraudsters? Yes, but only indirectly, according to the computer forensics journalist Sebastian Mondial. He says he hopes that the actual data will never be published. The point of the exercise is not simply to put all of these firms' data on the Internet and let everyone look at it to see who has transferred how much money, or who owns which companies. Rather, says Mondial, "The lawmakers and the respective countries must somehow find a way of establishing transparency."


      Tax evasion made easy, legally

      Some prominent German artists and athletes do not pay taxes in Germany. This is perfectly legal in certain circumstances, but it can sometimes backfire, as Boris Becker found out. (12.01.2013) 

      On the trail of lost taxes in Greece

      A Greek journalist has published a list of 2,000 wealthy Greeks purported to have Swiss bank accounts. Some are asking whether his publication will force the government to change the way they collect taxes. (29.10.2012) 

      Greece fights eternal battle against tax evasion

      Greece is struggling to combat tax evasion and corruption. Last summer, the tax debts reached a record level of 45 billion euros. But so far, the state has recovered just 19 million euros of this debt. (25.10.2012) 
      Merkel downplays tax row with Switzerland
      Tax disputes between Germany and Switzerland are nothing new. Germans who invest in Swiss banks in order to evade taxes have long been a source of contention. A solution seemed near until recently. (03.04.2012) 
      Date 04.04.2013
      Author Rayna Breuer, Insa Wrede / cc
      Editor Andreas Illmer


      Global media investigation finds 612 Indian firms in tax havens

      Ritu Sarin Posted online: Thu Apr 04 2013, 04:18 hrs

      New Delhi, Washington : In the biggest global expose of its kind on offshore investments and secret financial transactions, an international group of investigative journalists has found details of more than 1.2 lakh offshore entities and trusts belonging to individuals and companies in more than 170 countries and territories, including India.

      These individuals and companies include politicians, the mega rich and tax offenders, among others, who have invested in tax havens such as the British Virgin Islands, the Cook Islands, Samoa and other offshore hideaways.

      The 612 Indians in this list include two members of Parliament — Lok Sabha Congress MP Vivekanand Gaddam and RS member Vijay Mallya — and several industrialists such as Ravikant Ruia, Samir Modi, Chetan Burman, Abhey Kumar Oswal, Rahul Mammen Mappillai, Teja Raju, Saurabh Mittal and Vinod Doshi.

      The list also includes businessmen who have had a brush with authorities such as the Income-Tax department and the CBI. Several of the offshore investments were made in possible violation of RBI and FEMA rules.

      Details of these transactions were contained in 2.5 million secret files and accounted for more than 260 gigabytes of data. They were obtained by the International Consortium of Investigative Journalists (ICIJ) and their total size is more than 160 times larger than the leak of the US State Department documents by Wikileaks in 2010.

      Based in Washington DC, ICIJ (www.icij.org) is an independent network of reporters who work together on cross-border investigations.

      ICIJ collaborated with 38 media organisations around the world, including the The Indian Express, for this ambitious global project and to analyse the documents. The other media partners include The Washington Post in the US, The Guardian and BBC in Britain, Le Monde in France and the Canadian Broadcasting Corporation.

      The secret files provide facts and figures — cash transfers, incorporation dates, links between companies and individuals — that illustrate how financial secrecy has spread aggressively around the globe. They represent the biggest stockpile of inside information about the offshore system ever obtained by a media organisation.

      Besides several well-known Indians, the lists include American doctors and dentists, middle-class Greek villagers as well as families and associates of long-time despots, Wall Street swindlers, East European and Indonesian billionaires, Russian corporate executives and international arms dealers.

      These people used international financial services providers such as the Portcullis Trustnet (PTN) of Singapore and the Commonwealth Trust Limited (CTL) in the British Virgin Islands to register offshore companies in tax havens. PTN and CTL, it has been found, have helped tens of thousands of people set up off-shore companies, personal financial trusts and hard-to-trace bank accounts.

      Anti-corruption campaigners argue that offshore secrecy undermines law and order and forces average citizens to pay higher taxes to make up for revenues that vanish offshore. The stolen asset recovery initiative, a programme of the Wold Bank and the United Nations, has estimated that cross-border flows of global proceeds of financial crimes total between $1 trillion and $ 1.6 trillion a year.

      On the other hand, offshore defenders counter that most offshore patrons are engaged in legitimate business transactions. Offshore centres, they say, allow companies and individuals to diversify their investments, force commercial alliances across national borders and do business in entrepreneur-friendly zones that eschew the heavy rules and redtape of the onshore world.

      The 15-month long investigation has found that alongside perfectly legal transactions, the secrecy and lax oversight offered by the offshore world allows fraud, tax dodging and political corruption to thrive. The expose has also thrown light on the functioning of “nominee directors’’ in offshore companies, several of whom have also been engaged by Indian patrons of offshore companies.

      For instance, a cluster of 28 “sham directors’’ have been identified as having served as the on-paper representatives of more than 21,000 companies between them, with some individual directors representing as many as 4,000 companies each.

      The expose comes shortly after a list of 18 Indians who had bank accounts in the LGT Liechtenstein Bank and around 700 Indians who had accounts in HSBC in Geneva became public. In both cases, account holders were prosecuted and paid penalties to Income-Tax authorities for deposits they had made abroad without paying taxes in India.

      Incidentally, India had signed a double taxation treaty called the Tax Information Exchange Agreement with the BVI in 2011 to check tax evasion and money laundering from the tax haven. Finance ministry officials said that similar agreements are in the process of being drafted with the Cook Islands and Samoa.

      While the Liberalized Remittance Scheme 2012 permits Indians to deposit up to $200,000 abroad annually, the RBI has made it clear that this does not include deposits in tax havens. “As yet, the $200,000 facility for remittances abroad is not applicable for individuals to open accounts or companies in tax havens,” a RBI spokesperson told The Indian Express.

      Auditors said the legality of holding offshore accounts and registering offshore companies is complex. The RBI restriction on individuals incorporating companies abroad, they said, can be easily circumvented if an offshore company is first incorporated and the shareholding then transfered to the beneficial owner.

      In the cases under scrunity, documents show that both patterns have been followed. The date of incorporation and the date of the patrons being appointed shareholders/directors is either identical — which is a violation of RBI guidelines — or is a month or so later. If it is the latter, these individuals can say they just acquired shares of an offshore company.

      However, with individuals debarred from using LRS for setting up companies, even the remittance dispatched by them for setting up an offshore entity can be a violation. Under rules of the Foreign Exchange Management Act (FEMA), the use of the offshore route to bring in FDI is also prohibitted and is a violation of Section 8 of the act.

      There is also a restraint on individuals setting up offshore companies without the prior approval of the RBI.


      * 15-month investigation based on 260 GB data in 2.5 million secret files including 2 million emails covering nearly 30 years

      * Data had details of over 1.2 lakh offshore firms/trusts and 12,000 agents

      * Owners, benefactors of offshore accounts spread across more than 170 countries, territories

      * 86 ICIJ journalists from 38 media organisations in 46 countries collaborated in investigation

      * Data found 28 ‘sham directors’ who together represented 21,000 firms


      Why tax havens exist; and how India has its own tax havens
      by R Jagannathan Apr 4, 2013

      The business of money in tax havens excites the imagination. One can conjure up loads of ill-gotten wealth being stashed away in some underground cellar, with the owner decked in diamonds and rolling on a bed of greenback.

      Today’s Indian Express has a story about 612 Indians who are among thousands with accounts in tax havens. It will make waves. Apart from our own 612 tax haveners, the story talks of 1.2 lakh offshore entities and trusts involving 170 countries.

      The story, which has been done through the collaborative efforts of several global investigative journalists banded together under the banner of the International Consortium of Investigative Journalists (ICIJ), names 20 of the 612 Indians today. The most prominent names among them are Vijay Mallya (of Kingfisher infamy), Teja Raju (son of B Ramalinga Raju of Satyam ignominy) and Ravi Ruia (of Essar) – apart from a motley bunch with surnames such as Oswal, Modi (not you know who), Mittal (of Indiabulls), Mammen Mappillai (MRF) and Oswal (scion of the Ludhiana-based textile and chemicals group), among others. (See the full list here)

      What we have to brace for is more disclosures in the coming days, which could be even more sensational – though that is still to be seen. At the very least, the Indian stock markets may be roiled with a new bout of concerns about who will get named tomorrow or the day after.

      The Express says that the details of the tax haven transactions of Indians and other global mega-rich who like to keep their nest-eggs outside their home countries will dwarf the documentation of WikiLeaks. It says: “Details of these transactions were contained in 2.5 million secret files and accounted for more than 260 gigabytes of data. They were obtained by the International Consortium of Investigative Journalists (ICIJ) and their total size is more than 160 times larger than the leak of the US State Department documents by Wikileaks in 2010.”

      It adds: “The secret files provide facts and figures – cash transfers, incorporation dates, links between companies and individuals – that illustrate how financial secrecy has spread aggressively around the globe. They represent the biggest stockpile of inside information about the offshore system ever obtained by a media organisation.”

      In the coming days, the stuff will surely hit the fan as more big names are disclosed both in the Indian media and abroad. However, some cautionary notes need to be stated upfront.

      First, and most obvious, the volume of documents accumulated, while important for an investigation on this scale, is less important that the value of the data they contain. Details of cash transfers, dates of incorporation, et al, are important pieces of evidence, but closing the loop between the persons named and the money trail will need much, much more investigation. It is worth recalling that even though the 2G scam is sure to have involved a lot of slush money, the money trail has more or less been lost.

      Using tax havens to stash away funds needn’t always be illegal. Reuters
      Second, not all accounts and corporate presence in tax-havens may necessarily be in violation of the law. Many of the persons named – Ravi Ruia, for instance – are non-resident Indians (NRIs) who only have to be in compliance with the tax laws of their domicile countries. Disclosures to Indian entities may also have been made, but may not be known to the investigators. Indian companies and Indian residents who have to be in compliance with our laws – most of which lead to more harassment than legal convictions – may not have much to worry about.

      Third, the moral argument against those with accounts/businesses in tax havens is that they may be evading domestic law and taxes. However, laws change all the time. It was once a crime to hold a single dollar in your wallet; today, you can do so without fear. Moreover, it may be part of a specific government policy to encourage inflows from tax havens. Take our own government: we have deliberately left open a loophole for companies to route their investments to India through Mauritius, and this is benefitting our stock markets, and also helps us in meeting our current account deficit.

      Not only that, we have now specifically announced that the General Anti Avoidance Rules (GAAR), which Pranab Mukherjee introduced in the 2012 budget to deter ruses meant to evade tax, will not be implemented for three years. The message is simple: when we are in trouble on the external front, we will not look at the colour of the money.

      Fourth, it goes without saying that capital will try to reside where it is taxed the least. A tax haven is not necessarily a shady place to park your money (though some of them surely are): it is merely about giving individuals and companies tax or other breaks and get them to invest there. Even today, countries have double-tax avoidance treaties, which enables companies to legitimately pay lower taxes in one country and avoid the higher tax rate in another country. Mauritius is famous because it has zero tax on certain types of incomes – and we have a double-tax treaty with that country. We have created a tax haven, not they.

      Fifth, tax havens exist within India as well. When Narendra Modi offers the Tatas a tax credit for putting up the Nano factory in Gujarat, he is offering a sales tax haven for the project for some years. When Nitish Kumar demands special status for Bihar, he is essentially demanding that his state should become a tax haven for domestic and global investors in order to develop faster.

      Not only that. Politicians create their own tax havens to favour their voters. Today, farmers pay absolutely no income tax whatsoever – so if you want to evade income tax legitimately, you could do worse than marrying into a farming family and show most of your income as derived from agriculture.

      Seen in this perspective, tax havens are instruments through which states which would never have got capital are using the bait of tax advantage to develop themselves.

      Look at the same picture globally, and this is what is happening. Switzerland, once the prime tax haven, is now becoming less of a haven under pressure from the US and neighbouring countries. This is what makes the British Virgin Islands, Cook Island etc more attractive now.

      The only real way to avoid the flow of tax-evaded money across borders is to have similar tax rates and laws across the whole world. Which ain’t going to happen.

      This is not to say that businesses and individuals who move their wealth to tax havens are pure as the driven snow. They are crooks as defined by domestic laws. But not all of them can be tarred with the same brush.

      Just as one man’s terrorist is another man’s freedom fighter, a tax haven is one country’s red carpet for investors, and a red rag for taxmen in another.



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