The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investments that were leaked to the German journalists Frederik Obermaier and Bastian Obermayer of the newspaper Süddeutsche Zeitung. The newspaper shared them with the International Consortium of Investigative Journalists and a network of more than 380 journalists. Some of the details were first made public on 5 November 2017, and further stories continue to appear.
The documents originate from the law firm Appleby, the corporate services providers Estera and Asiaciti Trust, and business registries in nineteen tax jurisdictions. They contain the names of more than 120,000 people and companies. Among those whose financial affairs are mentioned are, separately, AIG, the then Prince Charles and Queen Elizabeth II, the president of Colombia Juan Manuel Santos, and the US Secretary of Commerce Wilbur Ross.
The release of the documents resulted in scandal, litigation, and the loss of positions for a number of those named, as well as in legal action against the media outlets and journalists who published the papers.
Background
On 20 October 2017, an anonymous Reddit user hinted at the existence of the Paradise Papers. Later that month, the International Consortium of Investigative Journalists (ICIJ) approached the offshore law firm Appleby with allegations of wrongdoing. Appleby stated that some of its data had been stolen in a cyberattack the previous year and denied the allegations made by the ICIJ. After media outlets began reporting on the documents, the firm said there was "no evidence of wrongdoing", adding that it was "a law firm which advises clients on legitimate and lawful ways to conduct their business" and that it did "not tolerate illegal behaviour".
Appleby also asserted that the firm "was not the subject of a leak but of a serious criminal act" and that "this was an illegal computer hack". It added: "Our systems were accessed by an intruder who deployed the tactics of a professional hacker."
The documents were acquired by the German newspaper Süddeutsche Zeitung, which had also obtained the Panama Papers in 2016. According to the BBC, the name "Paradise Papers" reflects "the idyllic profiles of many of the offshore jurisdictions whose workings are unveiled"—the so‑called tax havens, or "tax paradises".
The data breach comprises some 13.4 million documents—totalling approximately 1.4 terabytes—drawn from two offshore service providers, Appleby and Asiaciti Trust, and from the company registers of nineteen tax havens. Journalists from Süddeutsche Zeitung contacted the ICIJ, which has been investigating the documents together with 100 media partners. The consortium made the data available to these partners using Neo4j, a graph‑database platform designed for connected data, and Linkurious, graph‑visualisation software. This enabled journalists across the globe to work together on the investigation. The documents were released by the consortium on 5 November 2017.
Companies named
According to the papers, Allergan (the manufacturer of Botox), Allianz, Apple Inc., Facebook, Global Vantedge, McDonald's, Nike, Inc., Siemens, The Walt Disney Company, Twitter, Uber, Walmart, and Yahoo! are among the corporations that own offshore companies. According to The Express Tribune, "Apple, Nike, and Facebook avoided billions of dollars in tax using offshore companies."
Among the Indian companies listed in the papers are Apollo Tyres, the Essel Group, D S Construction, Emaar MGF, GMR Group, Havells, Hinduja Group, the Hiranandani Group, Jindal Steel, the Sun Group and Videocon.
Apple
A great deal of the company's intangible property was exposed around the time of an internal Apple Inc. reorganisation of three Irish subsidiaries. The company's 2015 gross domestic product showed a 26% increase, and close to $270 billion of intangible assets suddenly appeared in Ireland as the year began – more than the entire value of all residential property in the country. This may indicate that Apple took advantage of a tax incentive known as a capital allowance, which gives Irish companies generous tax breaks for buying intangible property – essentially intellectual property like patents. In other words, Apple (some suggest) transferred them to a subsidiary located in Ireland for the tax incentives, and didn't have to pay any tax on the transaction in Bermuda either, on the value it declared on the property when it sold them to itself.
Following a 2013 US Senate investigation, which featured testimony by CEO Tim Cook, Ireland announced that henceforth Irish companies would be required to declare tax residency somewhere in the world. Apple had been paying a lower rate of corporate taxes in Ireland in a so-called sweetheart deal. This attracted the attention of EU regulators as many multinationals were doing the same thing. As the tax break in the Netherlands came to a scheduled end, Apple's law firm, Baker McKenzie, researched island tax havens, asking Appleby officials in numerous jurisdictions to confirm "that an Irish company can conduct management activities ... without being subject to taxation in your jurisdiction." Two of the subsidiaries moved to Jersey and took intellectual property with them. The third is receiving tax breaks in Ireland for buying Apple IP from another Apple subsidiary.
The Jersey Financial Services Commission (JFSC) issued a statement regarding Apple on 7 November 2017. The JFSC confirmed that the two Apple subsidiaries referred to by the media are not Jersey-registered companies and their understanding is that Apple funds relating to these entities have not been remitted to or held in the Island.
The JFSC states that it has not seen any of the documentation that the International Consortium of Investigative Journalists (ICIJ) claims to hold following the Appleby data breach. If the ICIJ possesses data of a criminal or regulatory nature which relates to business activities in Jersey then the JFSC requested that this information be shared with them and, if there is any evidence of regulatory wrongdoing, they would then investigate and take action if appropriate.
The Government of Jersey (States of Jersey) also issued a statement of similar effect on 7 November 2017.
The jurisdiction of Jersey has recently been independently assessed as fully compliant with international regulatory guidelines on tax transparency.
The EU, under the leadership of Jean-Claude Juncker, threatened to sue Ireland over its tax deals, although Juncker himself had approved similar tax deals in his own country, Luxembourg. Apple paid all of its taxes in Ireland as required by that country, so Ireland is appealing the EU decision. HP, Nike, Microsoft and others use the same tax arrangements in Ireland, Luxembourg and other countries, but Apple is frequently cited as a media example. Irish companies are required to pay taxes in Ireland, but if they convince authorities that they are "managed and controlled" from abroad, the companies may win an exemption.
As of November 2017, Apple held $252 billion offshore. However, Apple has previously publicly stated that it reinvests post-tax earnings (generated outside the US) into the global economy via investment funds held offshore.
Avianca
Germán Efromovich, founder of Synergy Group, is linked to an offshore conglomerate used for the aero-commercial holding business with ramifications in Bermuda, Panama, and Cyprus. Efromovich used a Panamanian offshore that hid more than 20 firms located in tax havens. The conglomerate was used by Synergy Group's subsidiary Avianca Holdings in the purchase of MacAir Jet, now Avianca Argentina, an aircraft company owned by Macri Group, for an amount of $10 million, allowing Avianca to make headway in the low-cost carrier business in Argentina. The Argentine government accepted the offshores as a financial guarantee to assign air routes to Avianca. The whole operation of assigning air routes was investigated by the Argentine federal justice system in a case called "Avianca" in which the President of Argentina Mauricio Macri and other officials were imputed.
DST Global
A Russia-owned firm, VTB Bank, put $191 million into DST Global, an investment firm part of Mail.ru Group and was founded by Russian billionaire Yuri Milner, which used it to buy a large share of Twitter in 2011. A subsidiary of the Kremlin-controlled Gazprom funded an investment company that partnered with DST Global to buy shares in Facebook, reaping millions when the social media giant went public in 2012. Twitter similarly went public in 2013. The US government sanctioned VTB in 2014 because of the Russian military intervention in Crimea, but DST Global had by then sold its stake in Twitter. Four days after the Facebook IPO, a DST Global subsidiary sold more than 27 million shares of Facebook for approximately $1 billion.
Glencore
In 2009, Glencore, an Anglo–Swiss multinational commodity trading and mining company, loaned $45 million to Israeli billionaire Dan Gertler in exchange for his help with officials of the Democratic Republic of Congo in negotiations over a joint venture with state-owned Gécamines at the Katanga copper mine.
One of the Katanga board members was Glencore major shareholder Telis Mistakidis, a former employee whose stock options made him a billionaire in the IPO. Glencore, which had effectively taken over Katanga, agreed to vote for the joint venture. The loan document specifically provided that repayment would be owed if agreement was not reached within three months. Gertler and Glencore each have denied wrongdoing. Appleby had worked for Glencore and its founder Marc Rich on major projects in the past, even after his indictment in 1983. Rich was indicted in the United States on federal charges of tax evasion and making controversial oil deals with Iran during the Iran hostage crisis. He received a controversial presidential pardon from Bill Clinton on 20 January 2001, Clinton's last day in office.
A separate ICIJ project found that tax auditors in Burkina Faso accused a Glencore subsidiary of deducting from its taxes "fictitious" payments to other Glencore subsidiaries, and of selling the zinc from its mine (to another Glencore company) in unrefined form to minimise its revenue. Its CEO told shareholders before this that it expected a spike in demand, which did materialise. The mine is owned by Nantou Mining SA, which is owned by Merope Inc, a Bermuda shell company set up by Appleby with directors provided by the firm. Glencore sold Merope in April 2017 but before that, it was 100% owned by Glencore Finance (Bermuda) Ltd, which was, according to a document from the Paradise Papers leaks, 100% owned by Glencore Group Funding Ltd of the United Arab Emirates, an entity in turn 100% owned by Swiss firm Glencore International AG, itself a wholly owned subsidiary of Glencore plc, registered in Jersey.
Documents were also discovered discussing Glencore's desire to keep its substantial stake in SwissMarine a secret, and that although the subsidiary's annual report showed revenues of $1.9 billion in 2014, Glencore did not mention the subsidiary in its disclosures to the London Stock Exchange or in any other public filing because, it said, it did not consider this a significant investment.
The Australian branch of Glencore has been demonstrated to have carried out some $25 billion in cross-currency interest rate swaps, complex financial instruments the Australian Taxation Office suspects of being used to avoid paying taxes in Australia. The Australian High Court recently held that documents revealed in the Paradise Papers leak could be used by the Australian Taxation Office to assess Glencore's tax obligations, despite legal privilege.
Nike
The appleby documents detail how Nike boosted its after-tax profits by, among other manoeuvres, transferring ownership of its Swoosh trademark to a Bermudian subsidiary, Nike International Ltd. This transfer allowed the subsidiary to charge royalties to its European headquarters in Hilversum, Netherlands, effectively converting taxable company profits to an account payable in tax-free Bermuda. Although the subsidiary was effectively run by executives at Nike's main offices in Beaverton, Oregon – to the point where a duplicate of the Bermudian company's seal was needed – for tax purposes the subsidiary was treated as based in Bermuda. Its profits were not declared in Europe and came to light only because of a mostly unrelated case in US Tax Court, where papers filed by Nike briefly mention royalties in 2010, 2011 and 2012 totalling $3.86 billion. Under an arrangement with Dutch authorities, the tax break was to expire in 2014, so another reorganisation transferred the intellectual property from the Bermudian company to a Dutch commanditaire vennootschap or limited partnership, Nike Innovate CV.