Tax Haven: Analysing Tax Avoidance in respect of Panama and Pandora Papers

Author – Sagnik Sarkar, Advocate (Graduated from National Law University, Odisha) at Bombay High Court.

Best Citation – Sagnik Sarkar, Tax Haven: Analysing Tax Avoidance in respect of Panama and Pandora Papers, Indian Journal of Legal Review (IJLR), 3 (1) of 2023, Pg. 597-613, ISSN – 2583-2344.

ABSTRACT

The idea of taxation is not a new one but rather an age-old concept that forms the basic component of governing and administrating a State.  Based on the Constitution of India, the central government has to power to impose a tax on both natural and legal persons. It is with the imposition of tax on the legal person that several complications arise. The imposition of tax on corporates is decided based on two principles; source principle and resident principle.

The problem arises when corporates evade tax obligations and undertake different tax evasion techniques which make the imposition of tax difficult irrespective of the principle the home country follows. The prime vehicle used for such evasion is through setting up a shell company in a tax haven country and routing all the income from the home country to a tax haven country, thus, masquerading national income into international income. In such a scenario, since the source of the income becomes difficult to track, it becomes difficult to prove that income has been generated from a corporation based in the home country.So, to address the issue, the paper shall first analyse the fundamentals of the international taxation regime, and what are the different methods of corporate tax avoidance. Thereafter, the paper shall examine the concept of a tax haven with the help of the OECD rules and corporate tax avoidance principles. Lastly, the paper shall contemplate two recent tax haven controversies and their international implications