Sometimes it takes a scandal to bring policy reforms. Financial transparency is a global challenge that the world continues to fight and the Panama Paper leak has united the globe to take action against tax evasion and other financial crimes. CFO India finds out what the finance community thinks.
European Commission recently asked large firms to make their tax affairs within Europe more transparent. A report published by OECD states that there are still countries that have to implement international tax transparency standards that were agreed in 2009. Panama’s President Juan Carlos recently announced that the country will also adopt the international tax reporting standards and participate in the automatic exchange of tax information by 2018.
“Panama Paper leaks have shaken the rich and the powerful by exposing how they use networks of shell companies to dodge financial obligations and taking tax evasion to the top of the international agenda,” says S. Ramnath, CFO, ITD Cementation India Limited.
As the trove of 11.5 million leaked documents of offshore corporations showed how world’s financial and corporate centres are vulnerable to abuse, the countries are now looking up to international tax reforms. With the disclosure of 214,000 offshore companies’ and people’s information that were associated with the Panamanian law firm, Mossack Fonseca, there has been rabble of questioning about the global leadership and the selective information that has been disclosed.
In the meanwhile, the complicated tax knot on the global level requires a good fight to win over the systematic tax evasion. Recently, IMF chief Christine Lagarde asked the authorities to start thinking out of the box on global tax issue and not let powerful companies exploit the tax rules and take advantage of the tax havens. On the other hand, this leak has prompted Barack Obama, the US President to call for international tax reforms to ensure that everyone pays their fair share.
Raghuram Rajan, Governor, Reserve Bank of India, however, has warned against a “dangerous” trend of questions being raised about legitimacy of even the ‘entrepreneurial wealth of self-made people’ as reported by The Indian Express, the newspaper was part of the investigation of Panama Papers. Rajan says there can be legitimate reasons to have accounts outside the country as Liberalised Remittance Scheme (LRS) allows you to take money outside and advises against jumping to conclusions. The process of investigation will decide what all is legitimate and what isn’t, he said.
Shaken up by the leak, there is now a stronger push from International Economic Organisations (IEOs) on Country-by-Country Reporting. This has always been Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting agenda, and now there is an opportunity for the EU and IEOs to take a tougher action in the case of corporate transfer pricing and individual tax avoidance and evasion. Times like these are a call for better compliance and controls against financial crime, corruption and tax evasion. And the finance community agrees.