The latest revelation of the International Consortium of Investigative Journalists, contained in the so-called ‘Paradise Papers’, could not have been timed better, coming as it does in the week the country celebrated the first anniversary of demonetisation as ‘anti-black money day’. It is also a reminder that measures such as demonetisation are bound to show meagre results in actually combating black money because most of the unaccounted money has been moved overseas and invested in assets. Establishing the links in such transactions is, however, difficult since they are conducted under a thick veil of secrecy involving a web of shell companies located in tax havens across the globe. Therefore exposés such as Panama Papers and Paradise Papers give governments some evidence to go after tax evaders. The Paradise Papers, based on nearly 7 million documents leaked from Appleby, a law firm based in Bermuda, and Asiaciti, a trust company from Singapore, have 714 Indians featuring in them. This makes India rank 19 out of the 180 countries in terms of the number of entities named.

But many of the transactions reported in the Paradise Papers took place years ago, when the regulatory regime was different; the documents pertain to a period spanning 50 years. It could, therefore, be quite difficult to prove wrongdoing. Many of the transactions could also be legal, with entities simply playing on tax arbitrage, exploiting loopholes in the tax structures of countries. The Multi-Agency Group constituted to investigate the Panama Papers found that of the 426 cases that featured in it, 279 were non-actionable due to the fact that the entities were either non-residents or no irregularity was found in the transaction. It is, however, heartening that the resolve to fight tax evasion is quite strong, not only in India but across the globe. The Indian government has enabled a series of changes to laws to check tax evasion through tax havens. Its move to tweak the Indo-Mauritius Double Tax Avoidance Agreement in 2016 to make investments through the Mauritius route liable to capital gains tax from April this year, demonstrates this resolve. The General Anti Avoidance Agreement has also been implemented from this April, making innovative tax arrangements liable to scrutiny. Becoming a member of the OECD’s Base Erosion and Profit Shifting (BEPS) agreement further underlines the Government’s intent to plug revenue leakages.

While such measures will help curtail future tax losses, bringing back money that has been moved overseas over the last few decades will not be an easy task. It’s only when information sharing is seamless, across jurisdictions, that this money can be identified or brought back. Following the lead of the European Union in calling for a blacklist of tax havens that refuse to cooperate with other countries on information-sharing could be a step in the right direction. It is only when these tax havens improve transparency that the real tax evaders can be identified.

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