Myth of Off-shore Companies



  • Off shore companies are a burning topic in Pakistan these days. There appears to be quite a confusion about it and many a people offer comments on it without fully understanding the legal status. I would like to offer some comments to the best of my ability.

    1. Off-shore companies are outside the jurisdiction of Pakistan.
    2. Offshore companies are formed in the main to minimise the taxation of all kinds.
      3.Minimisation of taxation is not "Tax Evasion". and therefore is not illegal.
    3. If it was not for Panama leaks, no one in Pakistan would have known about the existence of such companies except those who set up these companies.
    4. The only issue arising is the legitimacy of funds used for investments. If the funds were genuinely owned by the investors and legitimately exported out of Pakistan then there is nothing wrong with such companies and the owners of such companies do not owe any explanation to anyone whatsoever.

    I hope those who are using the revelations for political scoring without necessarily understanding the issue will stop and think.



  • What you said is indeed true to some extent.

    But in Pakistan since the Panama leaks it was only Imran Khan who made all off-shore companies controversial through his infamous tweet. Then his minions started parroting the same line until they hit the wall a few days back.

    Now many of them have developed a soft corner for the off-shore companies.



  • Minions are minions....Minions on all sides must learn not to behave like ignorant. Sometimes, the best response is no response.
    I consider you as one with very well balanced views. I think bloggers like you can be opinion makers. Hence send a message of restraint to all if they care about Pakistan atall.



  • Other than tax saving, offshore companies are sometimes genuinely required for businessmen doing international businesses.

    For example, you can't open a bank account anywhere in the world on Pakistani passport without having a residence or work visa for that country. However offshore countries allow you to open an account in their country without a visa and you can operate that account online and make quick global payments as required.

    Most tax-heaven countries also offer a complete e-commerce solution along with offshore bank account, that you can use to setup your legal online business. Even though Dubai and other Middle Eastern countries offer tax-free business, it is usually not easy to setup and you have to rely on some sort of local national or authority to have the actual ownership of the business.



  • There is a significant difference between off-shore companies of around 400 individuals revealed in Panama papers and Imran Khan's company.

    Panama documents contained the names of the actual owners with their signatures, including Sharif family and all others. However Imran Khan's company is not in his own name, which hints that he intentionally tried to hide it and creates more doubts.

    Imran Khan's company would have never been found if journalists didn't access records of ownership of his flat tracing back to benami company.



  • @anjaan Is your definition a legal definition as it pertains to Pakistan? Or does it apply to the citizens of western countries also?



  • @rasheed
    Good of you to point out other benefits of offshore companies.
    Yes, there are also off-shore "Nominee Companies". The main aim behind nominee company is not to reveal the beneficial owner of the company which is normally associated with taxation but can also be , for instance if you do not want your wife to know......

    I would not hazard a guess what would be reasons for Imran Khan's nominee company but I can accept what he says "for tax avoidance". Being an unbiased and non-political individual, I believe that since his company was closed after the sale of his flat, it is a non-issue. But yes, if the funds with which he purchased the flat are proved to be ill-gotten then it is a serious issue indeed.



  • @rasheed said in Myth of Off-shore Companies:

    Imran Khan's company would have never been found if journalists didn't access records of ownership of his flat tracing back to benami company.

    Important to note here is that why did IK hid his own off-shore company all the while when he was demanding others to disclose theirs?

    That is creating more doubts about his own motives.



  • @curiousity

    I am not a legal person but the definition is sort of international unless the laws of a particular country forbid the citizens to own an off-shore company. As the revelation has not led to the Government taking actions against the owners of the off-shore companies, I assume that it is legal for Pakistani citizens.

    I know it is perfectly legal for the citizens of Europe.



  • @anjaan Isn't declaration of all yearly income and source of income required from citizens and residents?
    Please review this law!

    https://www.gov.uk/tax-foreign-income/overview



  • PM of UK, Immys Favorite homeland among all and also Favorite Salasaab,
    were both direct beneficiaries of Panama offshores but there was hardly any noise after
    few days b/c people know that is what rich people do; Avoid Taxes.
    And laws are on their side!And that is what immy did himself!

    Paki stani anchors probably only account statement understand is Desi Roznamcha , kharchnama type stuff, they probably never read let alone a modern small size corporation
    account statement.



  • @curiousity
    Yes, the overall view is correct. But that is state of play as it stands now. About 4 to 5 years ago things were different. If a citizen had foreign income and he was also non-domiciled (will not go into detail), he would be assessed on foreign income on a remittance basis (whatever income was remitted back to the UK).So, if I had $2million interest income generated by an account in the US, I was under no obligation to declare any income if I was a non-domiciled person. If on the other hand I was a domiciled resident, I will be assessed on a World-wide income.

    There were individuals who exploited this situation and the loophole was blocked by the change of rules and this can no longer happen.

    Long story, but the moral of the story is that it always is Government's responsibility to ensure that a bad law or bad practice is outlawed. Sadly, Pakistan is a different situation and as long as there are selfish rulers about things will never change which is a pity.



  • The income tax documents of Mitt Romney, the US presidential candidate against Obama in 2012, revealed that he paid only 14% of tax on his 300 plus million dollar investments. The company that was managing his portfolio was operating offshore accounts to minimize the tax and increase his wealth. This news was not well received by a big segment of the voters. If a person earning between 50 to 100K in salary is paying 25% tax, Romney should have been paying his fair share but he wasn't. As an ordinary citizen/businessman, that was okay but when he ran for the highest office, he had a difficult time explaining why an ordinary secretary was paying a higher tax rate than him.

    Offshore accounts are very hard to audit, and since they are secretive in nature, if people hide them well, nobody can do anything about it. Until the story broke about IK's past offshore accounts, before that no one even imagined he had one.



  • There is nothing legally wrong with having offshore accounts be these auditable or not. However, morally it is indefensible to not pay a fair share of the tax. The simple answer is that laws of the land should make it illegal to have offshore accounts.



  • Question is , if the offshore accounts are so difficult to audit, why don't who own them declare them?



  • Iss saadgi peh kaun na marr jaye aye khuda