Data hack at Appleby rattles Indians with offshore accounts
, ET Bureau|
Updated: Nov 06, 2017, 01.03 AM IST
MUMBAI: Over the weekend, several Indians, including some based abroad, have been alerted that their confidential financial information has been compromised by data theft at a large law firm that held the records in its offices in tax havens such as Isle of Man and Channel Islands.
The data hack at Appleby, the law firm in question, could release a torrent of carefully hidden information on bank accounts and offshore companies similar to the Panama Papers — a collection of leaked documents from Mossack Fonseca, a legal services firm.
Many resident as well as non-resident Indians have been forewarned by their advisers and service providers about the possible consequences of their names popping up in the Appleby data leak.
A leak of this nature is likely to reveal the structure of trusts, and shareholdings and directorship of companies with accounts in tax havens such as Bahamas, Bermuda and Virgin Islands.
“The names of a few comparatively obscure tax havens such as Vanuatu and Belize may emerge. There are those who had moved funds to these jurisdictions due to regular information sharing between countries and a closer watch by regulators,” said a person who is aware of the Appleby leak.
There is no tax on income, capital gains or inheritance in Vanuatu, an island in South Pacific. It also operates as a “flag of convenience” country that allows ship owners to register vessels in the island to escape regulations in the home country.
Belize, located on the eastern coast of Central America, is a preferred destination for money launderers as its currency is tied to the US dollar. Belize allows non-residents to freely operate offshore bank accounts.
“The government and tax authorities will have to deal with a flurry of names, allegedly with undisclosed overseas accounts. Even if Appleby confirms the data hack, prosecuting the persons named could take a long time. So far, other than the tax and enforcement departments sending notices to a few celebrities and movie stars and occasionally questioning them, no significant progress seems to have been made (in the Panama Papers case),” said another person.
Moreover, the Indian tax office and other authorities will find it very difficult to act against persons who have been non-resident for years, particularly when offshore bank accounts were established.
Firms like Mossack Fonseca and Appleby help clients to structure financial arrangements and sometimes take care of regulatory requirements. “The limited liability of companies with a nominal capital of just $20 was a convenient way to stash away wealth.
Funds are parked in the company’s bank accounts in multiple tax havens. The person setting up the company will never be on the board of directors. And the names of shareholders never came out. But now with data thefts and hacks, they are far more vulnerable,” said a tax adviser.
In cases of companies, the Enforcement Directorate typically initiates an inquiry by asking shareholders whether these entities were formed with the Reserve Bank of India’s permission and under the liberalised remittance route. However, in case of trust structures, persons whose money the trust holds in tax haven banks figure as settlers or beneficiaries.
At present, the income-tax department is waging court battles with some of these beneficiaries who argue they cannot be taxed as long as they do not receive any money from the trust.
The data hack at Appleby, the law firm in question, could release a torrent of carefully hidden information on bank accounts and offshore companies similar to the Panama Papers — a collection of leaked documents from Mossack Fonseca, a legal services firm.
Many resident as well as non-resident Indians have been forewarned by their advisers and service providers about the possible consequences of their names popping up in the Appleby data leak.
A leak of this nature is likely to reveal the structure of trusts, and shareholdings and directorship of companies with accounts in tax havens such as Bahamas, Bermuda and Virgin Islands.
“The names of a few comparatively obscure tax havens such as Vanuatu and Belize may emerge. There are those who had moved funds to these jurisdictions due to regular information sharing between countries and a closer watch by regulators,” said a person who is aware of the Appleby leak.
There is no tax on income, capital gains or inheritance in Vanuatu, an island in South Pacific. It also operates as a “flag of convenience” country that allows ship owners to register vessels in the island to escape regulations in the home country.
Belize, located on the eastern coast of Central America, is a preferred destination for money launderers as its currency is tied to the US dollar. Belize allows non-residents to freely operate offshore bank accounts.
“The government and tax authorities will have to deal with a flurry of names, allegedly with undisclosed overseas accounts. Even if Appleby confirms the data hack, prosecuting the persons named could take a long time. So far, other than the tax and enforcement departments sending notices to a few celebrities and movie stars and occasionally questioning them, no significant progress seems to have been made (in the Panama Papers case),” said another person.
Moreover, the Indian tax office and other authorities will find it very difficult to act against persons who have been non-resident for years, particularly when offshore bank accounts were established.
Firms like Mossack Fonseca and Appleby help clients to structure financial arrangements and sometimes take care of regulatory requirements. “The limited liability of companies with a nominal capital of just $20 was a convenient way to stash away wealth.
Funds are parked in the company’s bank accounts in multiple tax havens. The person setting up the company will never be on the board of directors. And the names of shareholders never came out. But now with data thefts and hacks, they are far more vulnerable,” said a tax adviser.
In cases of companies, the Enforcement Directorate typically initiates an inquiry by asking shareholders whether these entities were formed with the Reserve Bank of India’s permission and under the liberalised remittance route. However, in case of trust structures, persons whose money the trust holds in tax haven banks figure as settlers or beneficiaries.
At present, the income-tax department is waging court battles with some of these beneficiaries who argue they cannot be taxed as long as they do not receive any money from the trust.
