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Tax and accounting

Trouble in paradise: Leaks expose offshore financial industry

The Paradise Papers show the legal - but ethically questionable - ways corporations and wealthy individuals use tax havens to minimize their obligations.

All this week, media outlets across the world have been pulling back the curtain on the offshore financial affairs of a range of international corporations, politicians and high net-worth individuals by publishing findings from “The Paradise Papers” – 13 million files that shine a spotlight on the innermost workings of the international tax haven industry.

“The fact that these tax-haven structures exist and they’re used is not the surprising factor. There are many legitimate reasons for using offshore financial centers.” said Nathan Lynch, Reuters regional bureau chief for Asia-Pacific in Financial & Risk. “What is surprising, however, is the level of aggressive tax avoidance that many large corporations appear to have engaged in with assistance from their advisers. Now, the public has the smoking gun.”

The leaked data and documents were obtained by the German newspaper Süddeutsche Zeitung, which also published the world’s biggest data leak – the 2016 Panama Papers, which exposed how ultra-wealthy individuals were skirting taxes.

“These leaks will do for corporate tax evasion what the Panama Papers did for private client asset concealment,” Lynch said.

 Cayman Islands, a tax haven, is the world's fifth-largest financial centre and hosts almost two-thirds of the world's hedge funds. REUTERS/Gary Hershorn
The Cayman Islands, a tax haven, constitute the world’s fifth-largest financial center. They host almost two-thirds of the world’s hedge funds. REUTERS/Gary Hershorn

Under the auspices of the International Consortium of Investigative Journalists, 380 reporters from 67 countries combed through the trove of data. It was no small undertaking: the papers span from 1950 to 2016 and consist of 1.4 terrabytes of data made up of over 13.4 million documents.

Together, the Paradise Papers – so named because tax havens can be “paradise” for multinational companies – show how global companies and wealthy individuals strategically reduce their tax burden by artfully stashing money in favorable tax jurisdictions like the Netherlands, Switzerland and Caribbean islands like the Bahamas. In many circumstances, the maneuvers made are not illegal, but they do raise questions of ethics and morality.

A cyclist makes his way over a snow covered bridge in the Dutch capital of Amsterdam. The Netherlands is one of the world's largest tax havens, REUTERS/Maartje Blijdentein
A cyclist makes his way over a snow covered bridge in the Dutch capital of Amsterdam. The Netherlands is one of the world’s largest tax havens, REUTERS/Maartje Blijdentein

The Paradise Papers findings have been welcomed by countries including Germany, which has asked for a closer look at the underlying documents, and have  prompted calls for investigations in Pakistan, India and other countries. The EU is considering a  “blacklist” that would sanction companies with loose laws that allow them to be tax havens.

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