Daily Times

Setting up an offshore company — in a country with less stringent tax rules than your home country — is not illegal. Setting up a Shell-Company; to stash away ill-gotten money, is illegal, there is a major difference. A Shell-Company is sometimes used as a facade, and is incorporated by the wealthy for personal gain. This is a grey area where people funnel earnings through them, so that they are not counted towards personal income.

Even though, setting up or relocating to have an offshore company is completely legal, it is often a cover for tax avoidance, evasion and fraud. Tax avoidance is illegal, whereas transfer pricing or other tax avoidance strategies are legal. In fact, in some cases, you are required by the law to set up an offshore company to conduct a transaction. Without the setting up of a company in a different jurisdiction, you won’t be able to bring to a conclusion your desired transaction and setting it up is pertinent.

Though setting up an offshore company for legitimate concerns of an individual or a corporation is completely legal, it is mostly used as a means to torrent illegal cash, that is washed through tax havens and secret bank accounts — the sham Shell Company is used to stash away money made through corruption or unfair kickbacks on projects earned by crooked government officials. The money is then brought back into their home country under the guise of a legitimate payment from some foreign organisations or the profits earned by the non-functional Shell Company.

The offshore tax havens are extremely secretive with the investments made by the elitists and high-profile government officials, and there are a number of law firms catering to such clientele. The law firms operate within their legal jurisdiction but the people who are involved in such mischievous transactions deprive the governments back home of the funds to able to pay for education, housing and health care. By sending their unfairly made money to such tax havens and then bringing it back and reinvesting in their business back home-what these individuals do is rob the likelihood of an individual to make a living with fair play.

The dilemma faced by Pakistan these days and the lack of clarity associated with the Panama Papers leaks is captured in the following qustions: ‘Were the companies set up by government officials, legal and even, if they were, why would government officials set up such companies?’

The dilemma faced by Pakistan these days and the lack of clarity associated with the Panama Leaks is that,’ Were the companies set up by the government officials in Panama, legal and even if they were, why would government officials set up such companies, when they are legally bound and take an oath to keep the interests of the public before theirs?’

Why would a Pakistani government official need to incorporate a company in an offshore tax haven, is beyond the comprehension of the public at large. Why would an honest official, who keeps the interests of the public before his and has taken the responsibility to steer this country out of the everyday crisis it faces on a daily basis need to set up companies, and then buy millions of dollars worth of real estate; through phony trusts, keeping in mind and giving precedence to the interests of his family before that of the general public? No honest government official would ever conduct such a transaction.

Will it ever be possible to bring to justice such government officials for the illegitimate transactions conducted by them, is another question that an ordinary law abiding citizen might ask. What I would like to mention is that it is an extremely complex procedure and requires the promulgation of a new set of laws by the parliament, and even if the parliament is to promulgate a new set of laws; declaring the money sent illegally to foreign tax havens as illegal, not much can be done, with what is already out of Pakistan.

Bringing back the taxpayers hard earned money back to Pakistan will require a lot of effort domestically and internationally — as Conflict of Laws shall apply. I shall try to explain it with an example. In Amsterdam, it’s perfectly legal to smoke marijuana, so if a Pakistani resident were to fly to Amsterdam and were to smoke marijuana, in Amsterdam, he isn’t breaking any set of laws. What that individual did in that jurisdiction was perfectly legal. It might be illegal to smoke pot someplace else, but considering the jurisdiction the act performed in; it is perfectly legal, and for some other government to try to indict that said individual for an act committed in a completely different jurisdiction would be nearly impossible.

The same applies to offshore tax havens. The transactions, the property bought and the trading conducted in such offshore tax havens is completely legal. It would require for the home country, and the government of offshore tax haven; to legislate a new set of laws for the illegal money laundered to be brought back home. Only when the two governments work in cognisance with one another, will there be a possibility to bring the tax payers money back,

But why would a country — that relies on such investments — be willing to cut down on their earnings and work against their residents’ interests, is another question, and it may never become a viable option; considering the exorbitant amounts of legal costs the governments may face. It might be better to calculate the opportunity costs before partaking in such dubious activities.

The writer is a corporate lawyer and an alumnus of SOAS, University of London. He specialises in corporate governance issues and operates a law practice in Lahore called Sami Shah & Partners with offices in Toronto, Canada and Palos Verdes, California, USA. He can be reached at sami@samishahpartners.com

Published in Daily Times, November 9^th 2017.