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This article was first published 6 years ago  » Business » How the super rich stash money abroad

How the super rich stash money abroad

By Prasanna D Zore
November 21, 2017 08:23 IST
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'Tax dodging through tax havens is one of the ways multinational corporations and the super-rich in India are using to evade taxes.'

How corporates dodge taxes and stash them in tax havens
Illustration: Dominic Xavier/

The Paradise Papers released November 5, just three days ahead of the first anniversary of demonetisation, named 714 Indians who allegedly dodged paying taxes in India.

While the names of those who have allegedly evaded tax made all the headlines, and are still making them, one question that needs to be answered is the quantum of tax that has been evaded and allegedly siphoned off to tax havens.

A quick back-of-the-envelope calculation by Oxfam India estimates that just from 2010-2011 to 2016-2017, $153 billion of tax money that should have accrued to the India exchequer has flown out of the country through various tax havens.

If you consider the budgeted estimates of total tax revenue for the current financial year 2017-2018 then, only for this period, another $26.7 billion of tax money would be leaving, or has already left, the Indian shores (please see table below).

This calculation were made by Oxfam India on the basis of a 2012 report Study On Unaccounted Income/Wealth Both Inside and Outside The Country published under the aegis of the Central Board of Direct Taxes by the National Institute of Financial Management, an autonomous institution of the finance ministry.

This report pinned the total tax evasion inside and outside the country at 32 per cent of the total tax receipts of the Government of India for 2010-2011.

The Oxfam India research (below) extrapolated the figures for 2010-2017 based on the 32 per cent tax avoided estimate published in the NIFM study.

Corporate Tax Evasion was 32% of the total Corporate Tax Revenue in 2010-11
  2010-11 (Actuals) 2011-12 (Actuals) 2012-13 (Actuals) 2013-14 (Actuals) 2014-15 (Actuals) 2015-16 (Actuals) 2016-17 (RE) 2017-18 (BE)
Total Corporate Tax Revenue (INR Crore) 298688 322816 356326 394678 428925 453228 493924 538745
Corporate Tax Evasion - If 32% Tax Evasion in each year (INR Crore) 95580 103301 114024 126297 137256 145033 158056 172398
Corporate Tax Evasion - If 32% Tax Evasion in each year (INR Billion) 956 1033 1140 1263 1373 1450 1581 1724
Corporate tax evasion in USD Billion (taking exchange rate 1USD = INR 60.50 of 2013 ) 15.8 17.1 18.8 20.9 22.7 24.0 26.1 28.5
Yearly Annual Avg. Exchange Rates (1USD=INR) 45.563 47.923 54.410 60.502 61.144 65.468 67.072 64.482
Corporate Tax Evasion (in USD Billion) 21.0 21.6 21.0 20.9 22.4 22.2 23.6 26.7

Another study conducted by the International Monetary Fund and the United Nations' University -- World Institute For Development Economic Research (UNU -- WIDER) has pegged the revenue loss to India for 2013 at $47.53 billion and $41.7 billion.

Nisha Agarwal, CEO, Oxfam India, in an email interview with's Prasanna D Zore delved on a range of issues related to corporate tax evasion.

Is there a figure for tax avoidance since Independence or say since economic liberalisation in 1991?

There is insufficient data available in public domain on tax dodging in India.

The Indian government needs to make public country-by-country reporting to further crack down on wealthy multinational companies that are shirking their responsibilities.

Making these tax reports public would make it easier to verify whether companies' tax bills are in line with their real economic activity in every country where they do business -- and to hold them to account if not.

The above figure is based on the research conducted by IMF and followed by another study by UNU--WIDER (external link; opens a pdf file:

Why do you think Indian governments failed/fail to plug this tax leakage?

Tax avoidance is a global problem. Tax havens are at the heart of this system.

They allow massive amounts of wealth to flow untaxed and in secret, out of reach from tax authorities and regulators.

When rich individuals or multinational corporations stash their wealth in tax havens, they can dodge paying their taxes in the countries where they do business and where they make their money.

As revealed by the Paradise Papers, many wealthy individuals from across the globe, including several Indians, are using tax havens to avoid or evade paying taxes on their fortunes.

  • The Indian government must put a stop to the secrecy that enables rich individuals and international companies to avoid paying their fair share of taxes.
  • Governments should make multinational companies report publicly their financial information to see where they do business and where they pay taxes.
  • They should also establish a publicly available, centralised register of companies, foundations and trusts, and we should know who their real owners are. This will make it easier to follow the money.
  • We need a real blacklist, one based on objective, comprehensive criteria, and free from political interference.
  • Listed countries should face stiff penalties.
  • Indian government must work with other governments to work together to fundamentally reform the international tax system, one that does not favour the wealthy nations, to end the era of tax havens.
  • We are also urging the government to activate public country-by-country reporting -- a change in the rules that would force multinational corporations to be upfront and honest about the taxes they pay, in all the countries they operate in. (More here; external link)

Does this tax avoidance figure for 2013 include national as well as multinational companies operating from Indian soil?


Nisha Agrawal, CEO, Oxfam India

What are the methods that corporates employ to avoid paying their legitimate taxes in India?

Tax dodging through tax havens is one of the ways multinational corporations and the super-rich in India are using to evade taxes.

Tax havens are locations with zero or low tax rates to attract foreign capital or business and multinationals or the rich locate their profits in these jurisdictions.

The latest Paradise Paper leaks show how company profits and the assets of the rich have been sheltered by a network of private banking, legal, accounting and investment industries exploiting the secrecy provided by tax havens.

Other commonly used methods of tax avoidance are:

1. Money laundering

According to the definition adopted by the Interpol general assembly in 1995, money laundering is 'any act or attempted act to conceal/disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.'

Since the laundered money cannot be sourced, it cannot be taxed either and this means a substantial loss of public revenue.

2. Hawala

It is a process of funnelling money from one location to another (usually abroad or from abroad to the domestic country) through a network of hawala brokers (service providers facilitating the process for a commission).

It is an informal channel for transferring money and other assets.

In South Asia this is a common practice. Presently, hawala is the dominant channel for migrant workers' remittances to their countries of origin.

3. Transfer pricing

Transfer price is the price at which goods and services between related companies are transacted.

Although, theoretically, the concept and practice of transfer price is not illegal, over the years, transfer prices have been severely manipulated in order to shift profits from high tax countries to low tax countries.

Consequently, there are substantial losses of legitimate tax revenues of governments of different countries.

4. Trade mis-pricing

Trade mis-pricing refers to intentional over invoicing/under invoicing of exports and imports in order to escape taxes.

Trade mis-pricing occurs when the import or export price for a particular good is invoiced at a level that either exceeds the market price (over-invoicing) or is below the market price (under-invoicing).

References (external links):

Measures To Tackle Black Money In India And Abroad

Government's White Paper On Black Money

Does the government know about this tax avoidance? If yes, why hasn't any government taken any measure to collect these taxes from the corporates?

Yes. Every government is aware of the tax avoidance in their respective countries. In this context, an excerpt from the President of India is cited below:

In a globalised world, more than two-thirds of trade is between related group entities. The inter-group transactions offer an opportunity for multinational enterprises to locate their profits in favourable tax jurisdictions with low taxes or no taxes. Taxation has thus acquired new complexities with political, legal as well as international ramifications.

Speech by then President Pranab Mukherjee at the valedictory ceremony of the 65th batch of the Indian Revenue Service.

In the following reports (external links) government's concern on this issue is depicted:

Measures To Tackle Black Money In India And Abroad 

Government's White Paper On Black Money

As tax avoidance is a global phenomenon, coordination between countries with regard to tax laws is essential especially on forums such as G20, BRICS, OECD and UN Tax Committee so the global standards that are set work in favour of both rich and poor countries.

India has taken initiative in the recent past.

Say, for instance, India and US in July 2015 signed an Inter-Governmental Agreement to implement the Foreign Account Tax Compliance Act to promote transparency on tax matters.

Information sharing is supposed to be started from September 30, 2017.

Besides, FATCA India also signed multilateral agreement on June 3, 2015 which will enable automatic exchange of information on multilateral basis with about 92 countries or so starting 2017.

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