Many companies across the world use offshore entities to avoid paying taxes.
It shows how 19 tax havens have been used by the global elite to trick tax officials in different countries.
There are several prominent names of personalities and firms that figure in the Paradise Papers, there are 714 Indian names.
Apart from tax evasion, details also point to possible conflicts of interest as well as incomplete disclosures.
The expose has brought back the focus on addressing the long-standing problem of domestic entities using international tax havens to store black money.
It comes at a time when the Indian government is patting its back for rooting out black money from the economy.
Whatactions have been taken by India?
The government has reconstituted Multi agency group (MAG) led by the Central Board of Direct Taxes (CBDT), to investigate cases relating to the ‘Paradise Papers’ data disclosure.
India has already implemented the General Anti-Avoidance Rule (GAAR) provisions, which empower tax authorities to act against tax-avoidance strategies.
As a signatory to the Base Erosion and Profit Shifting (BEPS) initiative of the OECD, India has signed a multilateral investment agreement to prevent the abuse of tax treaties.
India has also widened the scope of the “place of effective management” concept to allow the government to see through offshore entities created to evade taxes.
What are the complications in addressing the issues?
In the wake of the Panama Papers expose a multi-agency group was announced, but there is little to show for results as yet.
Part of the problem is that the mere existence of foreign accounts is not illegal.
Indeed, many such accounts do not involve any illegality as they comply with domestic regulations.
As a result, the government will have to ensure that an express desire to show results should not lead to the probe transforming into tax terrorism where anyone with foreign investments is hounded.
It is also important to distinguish between outright tax avoidance as well as stashing of black money in foreign accounts and efficient tax planning done within the rules.
Rationalising tax rates and reducing the incentive to avoid them will help in this regard.
