• JB TJIVIKUATHE JUST-RELEASED Pandora Papers, a trove of 12 million documents totalling 2,94 terabytes of information, reveals links between hidden wealth, tax avoidance and, in some cases, money laundering, by some of the world’s most rich and powerful political leaders.
The information was extracted from tax documents from 14 offshore service providers and the revelations have been thrust into the public domain by the International Consortium of Investigative Journalists (ICIJ).
They expose secretive offshore financial structures and trusts in tax havens, shedding light on the shadowy financial tactics of some of the world’s most wealthy and powerful political leaders, including from Africa. Some Namibian personalities are no strangers to this abhorrent practice.
The previously hidden dealings reveal how members of the elite corruptly use offshore accounts to shield assets collectively worth trillions of dollars.
The first information haul from the Panama Papers was published in 2016 and is probably the best known ICIJ investigation into tax havens. It was the biggest collaboration in history at the time, and led to the resignation of world leaders, criminal convictions, and more than US$1 billion being recouped.
The investigation exposed how Mossack Fonseca, one of the biggest offshore law firms in the world, sold thousands of shell companies in the British Virgin Islands to clients around the globe.
A tax haven is a jurisdiction with very low “effective” rates of taxation for foreign investors. In some traditional definitions, tax havens also offer financial secrecy. There’s no common universal definition, but tax havens, or offshore financial centres, are generally countries or places with low or no corporate taxes that allow outsiders to easily do business there. They typically limit public disclosure about individuals, companies and their owners.
A tax haven is any country or jurisdiction that offers minimal tax liability. They do not require businesses to operate out of their country or the individual to reside in their country to receive tax benefits.
Tax revenue keeps civilisation afloat but not all taxpayers play by the same set of rules. With the help of unscrupulous professionals, the wealthy and well-connected avoid paying millions and trillions of dollars in taxes in their home countries. The rest of us cover the difference, while treasuries are left bereft of money needed to build hospitals, clinics, schools, roads and tackle existential threats such as global pandemics (Covid-19), droughts and climate change.
By some estimates, about 10% of the total output of all economies worldwide is parked in offshore financial centres, held by shell companies. The cost to governments in lost revenue is estimated to exceed US$800 billion a year.
WEALTH BY STEALTH
The wealthy keep the money to build intergenerational fortunes, creating a new global aristocratic class and exacerbating the divide between the global haves and have-nots, increasing inequality particularly in the developing world. Countries that need tax revenue the most, lose more tax money as a percentage of their GDP than wealthy countries. As with other inequities related to a lack of fairness and justice, the poor get it the worst.
Those who exploit tax havens – a long list that includes corrupt politicians, mobsters, drug traffickers, and other criminals – do it to throw law enforcement off their scent. The easy movement of illicit money destabilises governments and helps despots and autocrats stay in power.
As a result of the Panama investigation, some tax havens, like the Niue and Vanuatu, have cleaned up their act under intense international pressure, while others, like Dubai, are apparently emerging as the new hotspots for the wealthy. Tax havens make significant income from fees paid by those who use shell companies. Mauritius, for example, has apparently said 5 000 people would lose jobs if the country stopped being a tax haven.
A shell company is a legal entity in a tax haven. Such companies typically have no full-time employees and no offices.
Rules differ, but the actual owners of many shell companies are not disclosed in corporation documents. They are called ‘shell companies’ because, like an empty shell, there’s nothing inside. They only exist legally on paper. Shell companies can hold money, luxury homes, intellectual property, business and other assets. They also facilitate the flow of illicit money around the globe.
Rich but otherwise ‘average folk’ use shell companies for reasons that may include making it harder for potential creditors, including tax inspectors, to identify and recoup money allegedly owed. Investments made through tax shelters can be especially lucrative because of the significant tax savings offshore companies may enjoy.
DIRE CONSEQUENCES
Owning or using a shell company is not illegal. However, the straightforward and honest answer is that it depends on how it is used and where the shell company is created or incorporated. Hiding stolen assets abroad is clearly illegal. Many companies that conduct transactions across borders can enjoy massive tax savings by routing payments, profits or investments through subsidiaries in offshore financial centres.
In summary, the most corrosive corporate tax havens are located in some of the most powerful countries. Some of those countries are responsible for more than a third of corporate tax avoidance risks. These corporate tax havens ruthlessly undermine the ability of other governments to tax multinational companies.
As a result, ordinary African citizens end up shouldering the biggest burden of taxation. They have to pay more taxes on personal income, on basic food items and on services. The most vulnerable in society suffer. Also, African nations may be forced to borrow money or rely on aid from some of the very same corporate tax havens that are lining their pockets as a result of tax avoidance.
More than one-third of inward foreign direct investment in African countries is in partnership with the top 10 countries on the Corporate Tax Haven Index; countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system.
Money laundering and tax evasion have become important political issues, which any government must pay ardent attention to nowadays.
* Major general JB Tjivikua served in the Namibian Police for 27 years.
