By Kate Jalbert and Andrzej Dyngosz, Engagement Managers at GES
Since April 2013, the International Consortium of Investigative Journalists has reported several times on offshore banking and the widespread use of tax havens by both corporations and wealthy individuals. There was the Offshore Leaks in 2013, the Luxemburg Leaks in 2014, the Swiss Leaks in 2015, the Panama Papers in 2016 and the Paradise Papers most recently.
The Paradise Papers include about 13.4 million documents dating back to 1950, which have been leaked from the offshore legal service providers Appleby and Estera as well as from corporate registries in some 19 jurisdictions, mostly in the Caribbean. Those documents contain a list of around 120,000 individuals and corporations that have offshore dealings and detail schemes that allegedly have been set up to avoid paying tax.
In many ways, the Paradise Papers do not tell us much that we did not know already. Much of what has been leaked is historical and it is not clear that there is any wrongdoing on behalf of the individuals or corporations that have been named. This is a key difference from the Panama Papers – the Panama Papers exposed a number of instances of tax evasion (which is illegal), while the Paradise Papers have yet to uncover criminality. In fact, some argue that some of the schemes highlighted were not even that controversial and there could be good reasons why that type of structure existed.
Instead, the Paradise Papers highlight various problems associated with the current international tax system. The leak seems to take aim not only at the parties named in the documents (i.e. elite individuals and corporations), but also the governments of the associated jurisdictions. Tax havens (i.e. jurisdictions where little or no tax is levied) and how they are used in the minimisation of tax bills is front and centre in the most recent leak. The media reporting on the Paradise Papers seems to suggest that there needs to be more regulation of certain jurisdictions. It is, therefore, no surprise that, just last week the EU has published its blacklist of 17 tax havens and its ‘grey list’ of jurisdictions that have committed to reform, which includes Bermuda, Isle of Man and Jersey, to name a few.
The Paradise Papers also show how complicated the international tax system has become and how it is struggling to adapt to our changing environment and the increasingly interconnected world. It is useful to take a step back and ask yourself why these schemes were created in the first place – in many cases, this comes back to problems with double taxation and difficulties associated with cross-border deals. Business is done on cross-border terms, yet our international tax system is very much based on country borders.
Most importantly though, the Paradise Papers signal a shift in public opinion regarding tax avoidance – it may not be illegal, but people will ask questions. This is where companies need to be particularly careful and why GES started its thematic engagement on corporate taxation this year. Companies need to ensure that they are managing the various risks, including corporate reputation, associated with tax head-on. This is certainly not an issue that is going away anytime soon.
For more information about GES’ Corporate Taxation Stewardship & Risk Engagement, please contact Kate Jalbert (email@example.com).
 The Financial Times, ‘Paradise Papers spark political backlash over offshore finance’, 6 November 2017, available at: https://www.ft.com/content/70aca220-c30a-11e7-b2bb-322b2cb39656
 Council of the European Union, ‘The EU list of non-cooperative jurisdiction for tax purposes’, 5 December 2017, available at: http://www.consilium.europa.eu/media/31945/st15429en17.pdf