Paradise Paper leaks - The Larger Implications

What is the issue?

While the sensational Paradise Paper leaks occupied considerable media space, the larger impacts of such episodes remain largely under-researched.

What are Paradise Papers?

• International Consortium of Investigative Journalists (ICIJ) had recently published the paradise paper leaks.
• This put around 13.4 million documents from the offshore law firm Appleby and propelled many nations to start investigations.
• The information included investments and funding structures of 120,000 businesses and many influential individuals.

What are the benefits of leaks?

• They provide tax administrations with a free audit of taxpayers reflecting new information and a clearer picture of cross-border activities.
• It also sets specific targets, which thereby increases the probability of detecting other evaders.
• It could also dissuade potential evaders as it highlights the risks and the consequent costs of evasion.
• As a rational response, governments might use leaked data to change tax laws to curb evasions.

How legitimate are leaks?

• Imperfections - Leakers are often anonymous and the hackers who bring them out are a heterogeneous assortment of sources.
• Among other imperfections, the leaks are usually incomplete, non-specific, and have within it - false positives and risks.
• There are also palpable apprehensions that organisations like ICIJ releases only selective data sets that are in its processions.

• Risks - Leaks might be agenda driven, which precise thought given to aspects like the timing of the leak, what and how much to leak.
• High-profile leaks might also carry with them immediate political impacts and on a lesser note, serve as good fodder for trigger-happy media.
• Such episodes could also lead to ill-advised knee jerk reactions that could hamper economic freedom and businesses in countries.  

How does the future look?

• Globally, growing concentration of wealth and the inability of tax administrations to track money trails across borders has been a major issue.
• Hence, reliance on systematically collected data to eradicate tax evasion is proving ineffective and sensational leaks are likely to remain popular.  
• But it remains uncertain if tax administrations, particularly in emerging economies, would actually follow the process to its conclusive end.
• This is because tax authorities are usually not fully independent and may themselves suffer from pockets of corruption and political arm twisting.
• Steady economic growth and consequent maturity in civic affairs, processes and practices are the only hope for a sustained victory against tax evasion.

Source: Business Standard