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Trouble in Paradise

Paradise Papers Shed New Light on Offshore Tax Havens


Recently, a massive cache of over thirteen million financial documents was leaked to several European newspapers. Referred to as the Paradise Papers, this collection of documents shed new light on the financial practices of the world’s wealthiest individuals and corporations. More specifically, they provided insight on the controversial subject of offshore tax havens.


The majority of the Paradise Papers originated from Appleby, a Bermudan law firm. The company boasts an enviable list of corporate clientele, like Facebook, Nike, and Apple, as well as a host of wealthy individuals, including Bono, Queen Elizabeth, and U.S. Secretary of Commerce Wilbur Ross. It is currently believed that Appleby assisted thousands of clients over the years in arranging for their financial affairs to take place in overseas jurisdictions with substantially lower or nonexistent tax rates.


The Paradise Papers have been noted as bearing a striking resemblance to the Panama Papers, which were a leak of financial documents that occurred in 2015 and resulted in the downfall of several prominent figures in business and politics. In the case of the Panama Papers, millions of financial documents emerged from Mossack Fonseca, a Panamanian law firm and offshore tax haven. Like the Paradise Papers, these documents were leaked to European journalists and were eventually made available to the public. Experts who have pored over both sets of documents agree, however, that the Paradise Papers reveal far more about offshore tax havens than the Panama Papers.


While Mossack Fonseca was held up as a lone bad actor in the Panama Papers, Appleby is regarded as only one of many offshore tax havens mentioned in the Paradise Papers. In addition, the Paradise Papers identify many more Canadian individuals and corporations – approximately 3,300 in comparison to the Panama Papers’ 625.


In particular, the Paradise Papers named Stephen Bronfman, an adviser and close friend of Prime Minister Justin Trudeau, as being responsible for moving millions of dollars offshore in an alleged effort to avoid paying taxes in Canada. During a foreign trip to Vietnam, Prime Minister Trudeau expressed his confidence that the matter involving Mr. Bronfman would be cleared up: “[W]e have received assurances that all rules were followed; indeed, the same assurances made in the public statement released by the [Bronfman] family, and we are satisfied with those assurances.”


The opposition in Parliament, however, was not prepared to put the matter to rest. In a recent Question Period before the House of Commons, Andrew Scheer, Leader of the Conservative Party, argued that this was just another example of Prime Minister Trudeau and the Liberal Party holding the wealthiest Canadians to a different standard than the rest of the country: “Why is the Prime Minister always making honest, middle-class families pay up while allowing his friends to avoid paying taxes in Canada?”


The New Democratic Party also heaped criticism onto Prime Minister Trudeau and the Liberals with calls to crack down on offshore tax havens. Alexandre Boulerice, Finance Critic for the New Democratic Party, hopes that the emergence of the Paradise Papers will spur changes in Canada’s fiscal policy that will criminalize the use of offshore tax havens currently operating in this legal gray area.Image - Obiter Dicta #6 - Jeevan Kuner


While tax avoidance is a legal practice, tax evasion is not. The distinction between the two, however, is not always clear. Generally, tax avoidance refers to individuals and corporations working within the law to minimize their tax bill. Tax evasion, on the other hand, refers to the illegal measures that individuals and corporations take to reduce tax obligations, usually by hiding wealth from the government.


The issue that lies at the heart of the Paradise Papers is whether stashing money away in offshore tax havens amounts to tax avoidance or tax evasion. According to Jonathan Farrar, an accounting professor at Ryerson University, the answer invariably leads to more questions: “It [tax evasion] is a very difficult thing to find and to define because the rules are not always crystal clear. If the rules were crystal clear it would be much easier to find if someone was engaging in tax evasion.”


It will likely take years for investigators to sift through the wealth of information contained in the Paradise Papers, which include bank statements, emails, and loan agreements. Since the Paradise Papers are still a recent development, it is not yet apparent how regulators will deal with the multitude of legal issues that this leak has presented. However, if one thing is for certain, it is that the issue of offshore tax havens is not going away any time soon.