Pandora Papers: What the taxman can do

In Ancient Greek mythology, Pandora, the one who bears all gifts, had a box which supposedly contained horrible things – misery, war, and death – which flew out into the world when the curious Pandora opened the box.

The Pandora Papers, a report released by the International Consortium of Investigative Journalists (ICIJ), is a compilation of more than 12 million documents that reveal offshore interest and activities of prominent world leaders, politicians, and billionaires, and for some, their tax sheltering schemes.

It was named after the artifact in Greek poet Hesiod’s poems as it may reveal dirty secrets in the future. Or in the case of those on the Philippines list, it may also reveal nothing dirty or illegal.

Offshore accounts, after all, are not illegal, at least not for Filipino individuals or their corporations.

But it would do well for the country’s taxman to use the information wisely; if he wants to go a step further – or several steps further – to see if Filipinos with offshore accounts are actually paying taxes on their income from these accounts.

For example, if a Filipino tycoon has an offshore account, the Bureau of Internal Revenue (BIR) can follow the money trail.

The use of offshore accounts

Usually, some of the country’s billionaires open offshore accounts when they have joint ventures or investments abroad and they want to shield their Philippine companies from trouble in case the joint venture collapses or is sued by other shareholders in that company. For some, it’s as simple as that.

There is nothing illegal about having offshore accounts, really.

But the BIR should check if the businessman linked to the offshore account paid income taxes for the dividends or income earned from that joint venture abroad. It’s a long and tedious process of auditing.

It’s another story, of course, if the reason is simply to hide wealth to avoid paying the right taxes in the Philippines or if the billionaire is just a front or a dummy for some politician (a Philippine president, for example) with the intention of hiding the politician’s unexplained wealth.

But generally, tycoons can very well justify their wealth.

It’s a different case for government officials whose salaries may not justify wealth in the British Virgin Islands, Panama, the Cayman Islands or wherever.

Transportation Secretary Art Tugade, for his part, insists the money in his offshore account was earned before joining the government.

Again, it’s the role of the BIR to look into this if it wants to make sure offshore accounts aren’t used to evade or avoid taxes.

I was able to chat with former BIR commissioner Kim Henares who shared with me some of these insights. I asked her if she did the same with people involved in offshore accounts during her time. She said there were no revelations such as the Pandora Papers at the time.

Regulators

Aside from the BIR, the Securities and Exchange Commission (SEC) can also look into all the documents of registered corporations.

Corporations usually include in these documents their subsidiaries that are part of or are actually offshore accounts.

Both the SEC and the BIR are sitting on a wealth of information – piles and piles of filings and some of these documents may unearth some Pandora’s boxes if they look close enough.

Money laundering

Of course, it’s also no surprise if investigations would reveal that offshore accounts are also being used to launder money.

It’s no secret that money laundering laws in the country are still relatively weak.

It’s the reason the Philippines is back on the Paris-based Financial Action Task Force’s (FATF) “grey list” of countries subjected to increased monitoring, putting us in the league of Haiti, Malta, and South Sudan, all of which have also been added to the grey list.

The Philippines now needs to submit progress reports to the FATF thrice a year, including progress on the monitoring of casino junkets, POGOs, remittance operators, etc.

The Philippines still has a long way to go in fighting money laundering.

So many channels and products can be used to launder money, from art to jewelry, to digital assets to virtual gems, and so much more.

I wouldn’t be surprised if multimillion procurement deals with the government, such as that involving Pharmally Corp. – practically a non-existent company before it bagged deals with the government--would also be found to be involved in laundering, too. But it’s up to our authorities to find out.

Bank secrecy

As it is now, the Philippines still has the strictest bank secrecy laws, together with only two countries, Lebanon and North Korea.

Against this backdrop, individuals who use offshore accounts to launder money may have made a mistake because in reality, their money is better hidden in the country.

As Kim Henares said in jest, “if they want to hide their money, they should keep their money here.”

Following the money trail

Whatever reasons government officials or billionaires may have in maintaining offshore accounts, the BIR can follow the money trail. Who knows, it may collect more taxes and recover even just part of the government’s revenue losses from the billionaire-friendly CREATE, which the DBCC said may reach a whopping P478.5 billion until 2024?

Note that in the tale about Pandora’s box, Pandora closed the lid before hope could escape. Our taxman may very well find that hope.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com