On October 3, the International Consortium of Investigative Journalists (ICIJ), a non-profit organization, released a damning new report on global tax evasion. The same organization is behind the Panama papers (2016), which shook economies and political systems worldwide. In 2021, the Pandora papers scandal reveals that the promises of 2016 were far from being kept.
The 600 or so journalists from 117 countries analyzed millions of confidential documents from 14 financial services companies based in Singapore, Switzerland, Cyprus, the British Virgin Islands, etc. The findings are shocking: the report contains the names of many political and media personalities, some of them being famous and others anonymous. New tax havens have appeared, such as South Dakota (United States) -- this city has become quite popular with ultra-wealthy people expatriates.
Pandora papers and expatriates
This new financial scandal comes five years after the Panama papers. The Pandora papers are also about tax issues. When the Panama Papers were out, governments around the world committed to fighting tax evasion and ensuring greater transparency. However, the same states are currently involved in the Pandora papers. The names of many presidents, ministers, ex-ministers and other political personalities are mentioned. The scandal has also taken a huge proportion in the media.
What about expatriates? The global survey also targets many expats. Still, the term “expatriate” is quite complex and hides as many realities as there are individuals. Legally, an expatriate is a person who works in another country other than his home country. By extension, it is used to qualify legal immigrants. However, the word “expatriate” seems to take on a different meaning, often associated with other terms like "rich", "money" and "investment". It is the caricatural vision of foreigners wanting to make a fortune abroad. However, the truth is that an ordinary expatriate is closer to the average employee, whether single or in a couple, with income that is quite comparable to what they would earn in their home country. And when they earn more, the proportions are not commensurate with the millions of profits made by the personalities mentioned in the Pandora papers. Still, there are wealthy expatriates who, for example, are currently targetted by Thailand. These are expatriates who are more likely to create partnerships and invest in foreign companies. But again, not everything is necessarily illegal.
Optimization or tax evasion?
It is essential to make a clear distinction between tax optimization, tax evasion and tax fraud.
Tax optimization refers to any legal process aimed at lowering taxes, for example, investing in the capital of a company, in real estate, in historical heritage, making donations, etc. Tax optimization is said to be "aggressive" when it gets close to tax evasion methods. This happens when individuals seek to take advantage of any inconsistency in tax systems to pay less taxes.
Tax evasion also uses legal means, but this involves transferring assets (assets and income) to a state with low taxation, thus paying less taxes in your home country. This practice becomes tax evasion when illegal means are used to lower taxes.
International tax fraud
While tax optimization and evasion are legal processes, they do have moral consequences. At a time of multiple crises (health, economic, socio-political, etc.) and considering how public figures are transgressing their own laws, public opinion is on the alert. It's worth noting that many expatriates have taken advantage of the flaws in tax systems to set up complex financial plans. Already convicted in the case of the former French budget minister Jérôme Cahuzac, Swiss lawyer Philippe Houman has been mentioned once again in the Pandora papers. The Cahuzac trial (2016) brings into light the lawyer's role in helping the then minister hide a bank account in Switzerland. But Philippe Houman has other clients too. In 2009, he moved to Dubai and has been managing offshore companies on behalf of clients of different nationalities.
An offshore company is a company registered in a country where the owner is not a resident. There is nothing illegal, provided that the actual activity of the said company and the origin of its financial flows can be defined. As long as it is possible to go back to the source of the created company, it does not qualify as tax evasion. This is precisely what Philippe Houman is criticized for and what certain investors and personalities. By creating one offshore company after the other, they have managed to build a complex and opaque system, making it very difficult for their income to be traced.
Another personality mentioned, and which also involves expatriate employees is the former Belgian Secretary of State, Pierre Chevalier. This political personality's name is cited in the Pandora papers along with that of George Forrest, a Franco-Congolese businessman. The two have known each other for a long time. In 2008, Pierre Chevalier was ordered to leave the United Nations after he had accepted a high position in the Forrest company and failed to notify the UN. His interests with the businessman kept growing. Pierre Chevalier takes the lead of a Hong Kong offshore company based in Panama on behalf of George Forrest. His missions were to hire expatriates and send them to the Democratic Republic of Congo (DRC). But in reality, according to the Pandora papers, the salaries of these "expatriates" have been transferred to four branches of the Forrest group to save money and other things on the renovation of the presidential palace in Kinshasa capital of the DRC. Caroline de Klerk, a spokesperson for the Forrest group, denies these allegations. She affirms that these employees are paid by Hong Kong since they come from all over the world, including Europe, India, Canada, the Philippines, Indonesia and North Africa.
Will the Pandora Papers scandal be another stepping stone in the fight against tax fraud? Once again, countries are making huge commitments, but whether they will stick to these is another issue. In any case, expats do not want to pay the price for those targeted by the international investigation. They are making it a point that they pay taxes in their host and home countries (depending on existing tax treaties). Far from any privileged status, they are aspiring to make a living like any individual.
