By Katherine Wang
A recent series of leaks exposes the secrets behind how wealthy political and celebrity figures and corporate giants evade taxes.
Made public by the International Consortium of Investigative Journalists (ICIJ), the Paradise Papers reveal offshore tax havens that protect the wealthy from paying their taxes. First leaked to German newspaper Süddeutsche Zeitung, these 13.4 million documents have included stories of how Queen Elizabeth II, Russian billionaire Yuri Milner, and even Apple managed to avoid paying high taxes. For instance, Apple has avoided income taxes by shifting its earnings to complex offshore structures, allowing it to keep more than $128 billion free from taxation.
While the Paradise Papers focus on several companies, about 6.8 million of the 13.4 million documents come from Appleby, a Bermudan law firm that “caters to blue chip corporations and very wealthy people”. Appleby helps its customers establish offshore trusts, reduce their taxpaying burdens, and conceal their ownership of sizable assets like private aircrafts and real estate. Like all legal firms, Appleby uses the term PEP, or politically exposed persons, for clients with prominent profiles. The Paradise Papers focus on these PEPs, and how they have used tax havens to their advantage.
What exactly are these tax havens? Tax havens are countries where taxes are assessed at an extremely low rate. Some ways in which tax havens facilitate tax avoidance include corporate profit-shifting, in which a multinational company can book its profits in a country with low tax rates instead of the country where it actually makes its sales. Companies like Facebook and Google have been involved in this process to lowers their tax bills. Not only are they places where powerful companies evade taxes, but they also perpetuate inequality. Economist Gabriel Zucman states that tax havens “are one of the key engines of the rise in global inequality. As inequality rises, offshore tax evasion is becoming an elite sport.”
Although they represent the fifth major leak of papers dealing with financial issues in the past four years, the Paradise Papers are unprecedented in their exposure of upper-end offshore dealings. Yes, the Panama Papers were the biggest leak of all, but the Paradise Papers concerned companies that were seen as part of the high end of town; while people might have dismissed the Panama Papers’ findings regarding Mossack Fonseca, they would definitely have not overlooked findings regarding Appleby, whose corporate clients include Goldman Sachs, JPMorgan Chase, and Citibank. Appleby was also named offshore firm of the year by Legal 500 UK. According to Gerard Ryle, this leak deals with the “gold-plated [companies]”, not “rogue players who would take any client”.
But why are the Paradise Papers significant? Not only are they dealing with roughly $10 trillion in the offshore financial centers, but they also bring to light concerns regarding global income inequality. They reveal the disproportionate impact the wealthy and powerful have on the law, and just how common it is for wealthy people to evade paying high tax rates without getting caught by the law. These papers have resulted in a myriad of investigations that have forced politicians and ministers from office. They will also put pressure on world leaders like Trump and Theresa May, who have promised to curb aggressive tax avoidance schemes.
While the questions raised by the Paradise Papers do not deal with legal principles (as it is not illegal to establish companies abroad), they certainly deal with moral principles: Is it morally right for the wealthy to stash their money abroad and allow the taxpaying burden to fall on less fortunate citizens?