The Pandora Papers, a no-longer-secret international tax avoidance scheme involving hundreds of the ultra-rich and powerful, was recently exposed by the International Consortium of Investigative Journalists (ICIJ).
“Tax avoidance is legal when wealthy individuals and corporations shift income and assets from one jurisdiction to another in order to minimize their tax burden,” said Jeff Kappen, an international business professor at Drake University. “But there are… concerns, increasingly, that the system allows, if taxes are not being paid, that’s roads that are not paved, schools that aren’t funded, healthcare that’s not provided.”
The ICIJ’s website calls the Pandora Papers “an investigation into the shadowy offshore financial system that reveals the workings of a secret economy that benefits the wealthy and well-connected at the expense of everyone else.” The papers are the largest tax avoidance document leak in history, surpassing both the Panama Papers and Paradise Papers, two other investigations by the ICIJ that exposed the wealthy class’s use of offshore tax havens.
The “papers” themselves are actually 11.9 million documents from 14 offshore service providers that “help those with money set up companies in low or no-tax jurisdictions,” the ICIJ said. These providers are shell companies that exist for no other reason than to hide the wealth of the person who owns them within countries that are tax havens.
“Cities and states and counties and countries are not collecting revenue to serve citizens and provide us basic services,” Kappen said. “If we think that aspects of public goods are underfunded, then allowing the very wealthy, whether individuals or corporations, to hide those assets is an ethical concern.”
Drake University international law professor Hunter Clark said that for criminal and civil prosecutions based on the Pandora Papers’ revelations, “a lot will depend on individually what they’ve done.”
“Some of these [tax havens] are used to hide criminal activity … The original concern [was that] we wanted to restrict some of these accounts because there was fear there after 9/11 that they were being used to channel money to terrorists,” Kappen said. “But now we’re finding out there’s more and more corruption being hidden and legitimized through some of these networks as well.”
Consequences have already started to show themselves and may be in the future for those named in the Pandora Papers. World leaders, celebrities, and businesspeople have been exposed by the ICIJ for taking advantage of tax havens, including Shakira, over 300 politicians, and Vladimir Putin’s alleged mistress, among many others.
Czech Prime Minister Andrej Babis narrowly lost reelection and Presidents Guillermo Lasso of Ecuador and Sebastian Pinera of Chile are being investigated because of the information that has come out of the investigation, according to the ICIJ.
“There were politicians who lost their seats, lost their presidencies because of the revelations,” said professor David Skidmore, who teaches international relations at Drake.
The problem of the wealthy not paying their taxes might seem to be a difficult problem to solve, especially with there being a complex financial system that allowed corporations and individuals to get away with this in the first place. One potential fix comes in the form of a minimum global corporate tax rate which the Biden administration is currently pushing in the OECD.
“It’s at a very rudimentary stage. The next question becomes, ‘How are we going to implement this?’ The plan is to implement it through the OECD,” Clark said. “Now, the OECD is the Organization for Economic Cooperation and Development. I believe it has 38 member countries right now, from North and South America to Europe and Asia Pacific.”
Skidmore said the policy is an alternative to raising taxes on people without great wealth.
“Now, our minimum corporate tax is 21%. In principle, our tax rate on corporations is higher than that 15% minimum,” Skidmore said. “However, we have so many loopholes that allow corporations to reduce their taxes that a lot of big corporations don’t pay any tax at all in the U.S. Now they’d have to pay regardless of the loopholes.”
To some, this issue may seem abstract, and the consequences far away. However, Kappen said the implications of the information exposed in these papers have real consequences for the average citizen and Drake student.
“When we see these scandals, it reminds us that we aren’t all on the same playing field … There’s the argument that it’s simply unfair, that the average middle-class person who doesn’t have access to the system ends up paying his or her fair share of taxes, while the wealthy and powerful are able to pay nothing or pay very little,” Kappen said.