A few weeks ago, the "Pandora Papers" investigation was disclosed, comprising a series of documents on the financial activities of offshore companies around the world. Public figures are exposed as owners of companies incorporated in "tax havens" to invest discreetly. Although these companies can sometimes be used for tax evasion or other financial crimes, they are entirely legal. To better understand the legality of this type of legal and financial tools, in this article we will explain what the Pandora Papers are and the context of tax havens and offshore companies in the world.

What are the Pandora Papers?

The Pandora Papers are a collaborative investigative project of the International Consortium of Investigative Journalists Global Network. It boils down to a compilation of documents that expose how various political, sports and celebrity personalities manage their fortunes. This investigative work shows how the use of offshore companies allows their partners to provide services and acquire goods around the world without paying special taxes in the countries where they reside. Therefore, it is often thought that this type of companies and banking confidentiality network is used to hide financial information, evade taxes or even launder money.

The truth is that the legislation of each of the countries where these companies are registered regulates the financial activities of the companies, so they have the obligation to verify the legality of their capitals. In that sense, the legality of offshore companies should not be questioned, since they adhere to the legal framework of countries such as Panama, the Cayman Islands, Bahamas and Puerto Rico, offering attractive benefits for businessmen who want to incorporate their companies and safeguard their capital in those territories.

What are "tax havens"?

These are countries that offer individuals and legal entities the opportunity to incorporate their companies in foreign territory with a low tax burden, for their activities and properties around the world. In addition, these carry many benefits such as confidentiality and the security of keeping your accounts and shares away from conflicts, as long as they are declared in accordance with the regulations of each territory. Countries such as Panama, Bermuda, Puerto Rico or U.S. territories such as Delaware, offer these types of financial services for the incorporation of foreign companies completely legal in their jurisdictions.

This type of relaxation of legal frameworks is beneficial for all those individuals and companies that consider that tax collection is too high in their country of residence. For example, the foreign property tax increases the taxes to be paid, resulting in an exorbitant amount that is difficult to pay at a given moment. In such cases, clients resort to the formation of offshore companies in order to be able to carry out their activities at an international level paying low taxes in those jurisdictions. Likewise, this type of association enjoys different credit programs and benefits from the banks of the country where they are established. Making them an ideal place to invest and safeguard the capital of a company.

What are the companies offshore?

They are corporate structures where the members can be residents or foreigners of the country where the company is established. They operate to acquire goods and provide services from countries such as Panama, Puerto Rico, Cayman Islands, Arab Emirates, among others, being regulated according to the legal and legislative context where they are established.

It is common to see how people invest in this type of companies because of their attractive tax rules, confidentiality and simplicity of incorporation. Since in the countries where the taxpayers reside the taxes for companies are very high in comparison to the so called tax havens. Although legally these properties and companies must be declared in the country of residence, and in the tax aspect, these are only paid in the country where the company is registered.

What is the scandal behind the legality of the companies? offshore and the Pandora Papers?

The scandal lies in the fact that it is believed that the use of these legal and financial tools is to hide assets or practice financial crimes. But the truth is that these companies adhere to the laws of the country in which they are incorporated, applying compliance to be able to operate legally from the registered country. In addition to adhering to the legislation corresponding to each operation according to the country where the transactions or services are being provided.

In short, these are companies that are created in one country to provide services and activities in another territory. They enjoy the same legal and financial security as a traditional company, only that they operate from the fiscal address of a country that grants them very good tax and credit possibilities. In that sense, we invite you to read our article Keys to understanding offshore banking in Puerto Rico so that you can get an idea of the benefits of these types of companies in the region.

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