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The recent publications by New York Times detailing US President Donald Trump’s tax filings has raised eyebrows on how a self-proclaimed billionaire paid only $750.00 in taxes when President Trump’s annual income was reported at $421 million with a tax bracket at 37%. Auditing experts have attributed the exceedingly low tax return to President Trump’s billion dollar business being operated from a tax havens.

What is a tax haven? A tax haven is an offshore state with little to no tax liabilities which foreigners can benefit from. These states generally do not require residency by the corporation or the individuals banking with them and do not share the details of the businesses and their assets to foreign or international financial authorities making them the ideal states to bank in on to evade taxes.

Famous tax havens like the British Virgin islands and the Cayman islands require no income taxes, no corporate taxes, no capital gain and inheritance taxes. However the world’s biggest corporations have banked in on another tax haven, Ireland. Major corporations like Apple and Google transferred all their assets to Ireland allowing them to evade a total of $85.7 billion in taxes to the US federal government.

Maldivian firms were flagged evading taxes in the British Virgin Islands.

 

Corporations and individuals who owe taxes to their native countries tend to use these tax havens to evade their taxes through loopholes in local and international financial laws and regulations. By transferring their businesses and assets to these states without any tax requirements, they are essentially able to conduct their business in their native countries without paying any taxes to the government.

In April 2016, Panamanian law firm Mossack Fonseca had a major breach of their security with over 11.5 million documents dating back to as early as 1970 was leaked. The documents detailed how these tax havens had enabled individuals and corporations to evade their taxes and hide their assets at various tax havens around the world.

Several high profile individuals in the tourism sector in the Maldives was also flagged in the papers. Current President’s Office Minister Ali Shiyam along with his business partner former ruling party MP Hamza Ahmed was on the list of individuals who have had their wealth and assets transferred to the British Virgin islands under a shell company to avoid taxes. According to the Panama papers by the ICIJ, the two had their business “AAA group” and their assets valued in excess of MVR 69,137,482.00 transferred to the British Virgin Islands under a shell corporation named “South Paradigm Limited” on 18th February 2015 allowing them to evade tax in the Maldives for the large part.

Former MP Hamza lost the Bilaidhoo constituency seat in the primary elections to MP Ahmed Haleem.

 

MNN’s investigations have also revealed that several high-profile businesses have been evading their taxes by incorporating a paper company in the British Virgin Islands and leasing their resort rooms to the paper company under a small fee of $45 per day for which they pay the required TGST to the government of Maldives. However, these rooms are then leased to the tourists by the paper company for $1500-$6500 a day essentially tax free.

This allows the business owners to pay the required TGST of 12% of $5.4 instead of the 12% of $1500-$6500, evading an estimated $180-$780 for a room per day. This would result in an estimated loss of $25,200.00-$109,200.00 to the government of Maldives in taxes during the peak 5 months from November to April.

The question remains, is this legal? Yes. It is well within the law to transfer ones assets and wealth to wherever one wants but is it ethical? No. Behind all the legal jargon and bureaucratic blockades, the act of transferring one’s own wealth to evade taxes while your business profits from the evaded state is immoral and unethical and nothing short of exploitation of the state and your fellow countrymen.

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