13.4 million documents have exposed offshore assets of large-scale companies like Nike and Apple. Otherwise known as the Paradise Papers, the files are one of the biggest leaks in history, coming 18 months after the leakage of the Panama Papers. Ultimately, the papers display how companies and notable figures like Queen Elizabeth II and Madonna have “avoided taxes through increasingly imaginative bookkeeping maneuvers,” as outlined by the International Consortium of Investigative Journalists, who began publishing stories regarding the papers on November 5th. Most of the files are sourced from Appleby, a Bermuda-based law firm that assists wealthy individuals and organizations install offshore companies and bank accounts. The firm holds extension centers in Hong Kong, Shanghai, and the Cayman Islands, spreading its influence across the world but responding to the allegations by saying that “there is no evidence of any wrongdoing.” The company appears to cater to clients who are seeking to reduce their individual tax burdens, while setting up large offshore trusts that help them avoid related financial costs. The recent leak has sparked a debate regarding the advantages and disadvantages of offshore financing, along with conversations about ethical violations committed by governmental officials and well-known figures.
One of the largest companies under scrutiny is Apple, an American multinational technology company known for its provision of technological services and breakthroughs. For several years, the company has channeled its overseas profits through Ireland to pay a mere tax rate in the United States of 0.005% in 2014, as reported by the European Commission (EC). After Ireland went under investigation by the EC during the Commission’s initiative to close tax loopholes, the tech company switched its jurisdiction to Jersey, the largest of the Channel Islands that lies between France and England. This new tax haven island has helped keep Apple’s 128 billion dollars in profit abroad free from taxation, especially since it is generally free from EU jurisdiction. When questioned about its tax arrangements, Tim Cook (current CEO of Apple) released a statement that mentioned the “company pays every dollar it owes in every country around the world.” The same statement included that Apple’s payments to Ireland “increased significantly” and amounted to $1.5 billion in tax, or “7 percent of all corporate income taxes paid in that country.” The situation sheds light onto the reasons why many Americans are starting to feel as though leaders are protecting a class of extremely wealthy individuals, especially as Congress continues to conduct investigations on Apple and others.
Other companies aside from Apple have been found in a similar situation. For Nike, moving the company’s rights to the iconic “swoosh” design to Bermuda helped cut the US tax rate to a range of 10-20%, far lower than the 30% from ten years ago. Facebook and Twitter were both found to have been substantially funded by two Russian state institutions with ties to Vladimir Putin. Russian money went to Gazprom Investholding and Kanton, two Russian institutions that fund stakes in Silicon Valley investors. Through this funding, they allocate large sums of money to Facebook and Twitter, sums of which were supposedly unknown by the companies. As a response to these allegations and exposures, national tax agencies have initiated probes, similar to what was done upon the release of the Panama Papers when leaders in Pakistan, Iceland, and Britain were criminally investigated for money-laundering and tax evasion.
Offshore schemes have not been limited to solely companies or established corporations; prominent governmental figures have also been involved. Commerce Secretary Wilbur Ross kept his stakes in a shipping firm called Navigator Holdings, a business that had increasing ties with a Russian natural gas firm known as Sibur. Ross responded by claiming he has done nothing wrong, but would be more than willing to sell his Navigator shares. This raised further questions regarding connections between Russia and Trump’s cabinet members, especially as the probe continues to this day. U.S. Senator from Vermont Bernie Sanders commented on the matter, stating that “the Paradise Papers shows how these billionaires and multinational corporations get richer by hiding their wealth and profits and avoid paying their fair share of taxes.”
It’s important to keep in mind that offshore entities are not illegal – what makes the “islands” so controversial is the secrecy that’s involved in their creation and maintenance. Money launderers, drug traffickers, and kleptocrats are attracted to the classified nature of the entities. Additionally, people moving their assets offshore make it appear as though they’re placing themselves outside of laws they don’t like since they have the financial means to do so. This puts more financial burdens on the shoulders of typical, day-to-day citizens, similar to the situation that a person who skips out on the bill at a restaurant places his or her friends in when their shares become more expensive. The Internal Revenue Service (IRS) estimated that people have to pay 15% of extra taxes because of the offshoring industry, clearly pointing towards the imbalanced responsibilities that lie between the high and middle/low income classes. Regardless of the legality of offshore entities, a critical debate about the ethics of offshore financing has begun since the release of the Paradise Papers. Supporters claim the foreign-based accounts assist cross-border investment and provide safe refuge for citizens who are financially struggling. Adversaries are certain the assets allow for the economic elite to curtail financial obligations and laws that apply to the common mass.
The Paradise Papers do a critical job of showing the dangers that are associated with tax havens, along with the way they contribute to a deterioration in public trust. If leaders and large-scale companies want to increase or simply maintain the level of trust and understanding that comes from their citizens and clients, they must be transparent with fund management.