India: Paradise Papers - "Catch Me If You Can"

Two days prior to observance of 'Anti-Black Money Day' by the Government of India to mark the first anniversary of demonetisation, comes the largest ever leak of financial data dubbed the 'Paradise Papers'. The Hunk of 13.4 million documents relating to offshore investment, leaked to the public on 5 November, 2017. It is suggested that the documents originate from the offshore law firm Appleby, the corporate services providers Estera and Asiaciti Trust, and business registries in 19 tax jurisdictions, often referred to as 'tax paradises'.

On 17 November, 2017, the International Consortium of Investigative Journalists (ICIJ) published additional data in the Offshore Leaks Database on close to 25,000 entities connected to the Paradise Papers investigation. More than 70 percent of the new records belong to entities incorporated in Bermuda and the Cayman Islands. Other jurisdictions that also include hundreds of new records are the Isle of Man, Jersey and Mauritius. Most of the online registries from these jurisdictions don't provide ownership or shareholder information1.

The leaks which constitute the most detailed revelations ever of such records were obtained by the German newspaper Süddeutsche Zeitung, and shared with the ICIJ which has been investigating the documents, together with 100 media partners including the Indian Express.

Nearly 7 million records from Appleby and affiliates, a noted multi-jurisdictional law firm, cover the period from 1950 to 2016 and include emails, billion-dollar loan agreements and bank statements involving at least 25,000 entities connected to people in 180 countries. Appleby is a member of the 'Offshore Magic Circle,' an informal clique of the planet's leading offshore law practices. The firm was founded in Bermuda and has offices in Hong Kong, Shanghai, the British Virgin Islands, the Cayman Islands and other offshore centers.2

Combating offshore tax evasion and enhancing a worldwide cooperation for exchange of information was one of the key objectives of India when the country signed the multilateral pact with the Organisation of Economic Cooperation and Development (OECD) in June 2017.

Also, Automatic Exchange of Information (AEOI) Implementation Report 2017 released a peer report on five countries including India at the tenth meeting of the Global Forum on Transparency and Exchange of Information of Tax Purposes held in Yaounde, Cameroon. The meeting was graced 200 delegates from 90 delegations and witnessed the adoption of the first report on the status of implementation of the AEOI Standard and also released the Paradise Papers. The Forum on Tax Administration's Joint International Task Force on Shared Intelligence and Cooperation (JITSIC) is already working collaboratively on the issues raised by the Paradise Papers leaks3.

Appleby has issued a statement warning clients that their private files may have been compromised by a successful hacking attack on the firm last year.  ICIJ claims to have seen some of Appleby's files and is seeking further information about their implications. Appleby was aware of the attack when it occurred, and acknowledges that some its data was compromised. However, it says that it reviewed its cybersecurity procedures in accordance with advice from a leading IT forensics team.4

Tax havens - promise of secrecy

Tax havens don't only attract their global clientele with low or no tax. One of the chief USP is secrecy. Tax havens are masters of opacity, resultantly there are strict laws in place that forbids any form of disclosure or investigation. The new files shine a light on a different cast of underexplored island havens, including some with cleaner reputations and higher price tags, such as the Cayman Islands and Bermuda.

Paradise Papers vis-à-vis Offshore Leaks (2013), Swiss Leaks (2015) & Panama Papers

Paradise Papers do unearth tracks of veiled offshore financial activities. Like Mossack Fonseca (of Panama Papers, 2016), Appleby helps set up companies and bank accounts overseas, provides nominee office-bearers, and facilitates bank loans or transfer of shares, in multiple secrecy jurisdictions. But unlike in the previous leaks, the latest revelations are more about mega corporates than individual players and how they took advantage of and, in many cases, misused offshore jurisdictions. It is indeed the fifth major leak of financial papers in the past four years and, yes, last year's Panama Papers were bigger in size - 2.6 to 1.4 terabyte - but the scale of the information in the Paradise Papers and how it lifts the lid on sophisticated, upper-end offshore dealings, many linked to the UK, is unprecedented.5

Offshore footprints of India INC.

Papers do suggest offshore footprints of some of India's major corporate players as well as of a few high net worth individuals. Appleby itself red-flagged round tripping on occasion by questioning if offshore funds meant for investing in India were sourced from India. There are instances of assets of Indian companies being used to guarantee loans raised by offshore companies without disclosing it to Indian regulators. Changing ownership of offshore companies to actually change the ownership of shares held by them in Indian companies without paying taxes in India turns out to be another common feature.

Among the 180 countries represented in the data, India ranks 19th in terms of the number of names, a report on the Indian Express website said. In all, there are 714 Indians in the tally.

Tax avoidance – a global scourge

Recently, global corporations such as Google, Amazon and Starbucks have faced strong regulatory intervention for allegedly manipulating legal loopholes to avoid paying tax. Former US President Barack Obama had called for international tax reform to curb the 'huge problem' of global tax avoidance and make sure 'everyone pays their fair share'.6

India's progress so far

(i) Constitution of the Special Investigation Team on Black Money, (ii) Enactment of 'The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015' to specifically deal with black money stashed away abroad, (iii) Constitution of Multi-Agency Group consisting of officers of Central Board of Direct Taxes, Reserve Bank of India, Enforcement Directorate and Financial Intelligence Unit for investigation of recent revelations in Panama paper leaks, (iv) Proactively engaging with foreign governments with a view to facilitate and enhance the exchange of information under Double Taxation Avoidance Agreements (DTAAs) /Tax Information Exchange Agreements (TIEAs) /Multilateral Conventions, (v) Enhancing global efforts to combat tax evasion/black money, inter alia, by joining the Multilateral Competent Authority Agreement in respect of Automatic Exchange of Information and having information sharing arrangement with USA under its Foreign Account Tax Compliance Act, (vi) Renegotiation of DTAAs with other countries to bring the Article on Exchange of Information to International Standards and expanding India's treaty network by signing new DTAAs and TIEAs with many jurisdictions to facilitate the exchange of information and to bring transparency, (vii) Amending the Prevention of Money-laundering Act, 2002, (viii) Enactment of the Benami Transactions (Prohibition) Amendment Act, 2016 to amend the Benami Transactions (Prohibition) Act, 1988, (ix) Initiation of the information technology based 'Project Insight' for strengthening the non-intrusive, information driven approach for improving tax compliance, and (x) Launching of 'Operation Clean Money' on 31st January 2017.

Despite a 'largely compliant' status in the recently released OECD tax transparency report, India's plans to support sustainable development through investments in infrastructure, health and other major issues face challenges due to an unremitting tax skirting rampant among overseas enterprises.

The Indian Finance Ministry issued a press release7 saying that "investigations in cases of Paradise Papers will be monitored through a reconstituted Multi Agency Group (MAG), headed by the chairman, CBDT (Central Board of Direct Taxes), having representatives from CBDT, ED (Enforcement Directorate), RBI (Reserve Bank of India) and the FIU (Financial Intelligence Unit)". One agency is missing from this list – the Directorate of Revenue Intelligence.

The Paradise Papers findings add to the revelations from 2016 Panama Papers investigation. The Panama Papers contained brief particulars of about 426 persons, prima facie, Indians or persons of Indian origin. The Income Tax Department conducted enquiries in all 426 cases, inter alia, through making 395 references to 28 foreign jurisdictions. Based on analysis of the information obtained and investigation conducted, the outcome so far indicates 147 actionable cases and 279 nonactionable cases (non-residents/no irregularities etc). Out of the 147 actionable cases searches conducted in 35 cases and surveys in 11 cases, 5 cases criminal prosecution in which complaints have been filed, 7 cases in which notices under section 10 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 have been issued, etc.8

Way Forward

The Paradise Papers, just like the earlier Panama papers, give ordinary people a glimpse into the parallel world. Yet these exposures continue a narrative that mystifies the nature and scope of what is really happening. This is another wakeup call reminding about industrial-scale tax dodging, call for stronger regulation of intermediaries, including penalties for those proven to be involved in tax evasion, aggressive tax avoidance or money laundering.

The policy makers should have a pragmatic realisation as to how it wishes to deal with past offences considering the tipid response to the Income Declaration Scheme, 2016, though not termed as an 'Amensty Scheme', when considered with overwhelming response to such initiatives of Indonesia & Latin American countries. In so far as future outlook is concerned, all the above enlisted measures should yield a desired behavioral pattern, lest one still believes that there is enough room to continue to run, till the time the authorities can catch up!!

Footnotes

1 https://www.icij.org/investigations/paradise-papers/icij-releases-paradise-papers-data-appleby/

2 https://www.icij.org/investigations/paradise-papers/paradise-papers-exposes-donald-trump-russia-links-and-piggy-banks-of-the-wealthiest-1-percent/

3 http://www.oecd.org/tax/10th-meeting-of-the-global-forum-on-transparency-and-exchange-of-information-for- tax-purposes-15-17-november-2017-in-yaounde-cameroon.htm and http://www.oecd.org/ctp/administration/paradise-papers-leaks-statement-by-hans-christian-holte-chair-of-the-oecd-forum-on-tax-administration.htm

4 https://www.step.org/news/appleby-prepares-clients-disclosure-stolen-documents

5 BBC

6 https://www.theguardian.com/news/2016/apr/05/justice-department-panama-papers-mossack-fonseca-us-investigation

7 http://pib.nic.in/newsite/PrintRelease.aspx?relid=173268

8 http://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/669/Press-Release-Cases-pertaining-Panama-Papers-Investigation-full-swing-7-11-2017.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Priyanka Mongia
Chandni Javeri
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions