Payal Chawla.Earlier this month, we woke up to the news of the leak of the Panama Papers involving 11.5 million documents leaked from Mossack Fonseca, a law firm headquartered in Panama. Classified information was obtained by a German newspaper from an anonymous source, who in turn took the assistance of the International Consortium of Investigative Journalists (ICIJ) to investigate, analyze the documents. Over 400 journalists spread over 76 countries were involved in this mammoth task..The story grabbed eye-balls and was front page news. It had all the elements that made it newsworthy – world famous politicians, actors, sportsmen, acclaimed lawyers, tax havens, possible insinuation of tax evasion. There were also claims that the money was routed through these tax havens for the purposes of money laundering, terrorist and drug financing..After months of research, the story broke in early April, this year. Big names emerged, followed by denials, resignations, explanations, reports of leaders leaving their countries. In India, the rich and famous were named. Given the intensity of the research and the compelling headlines, the presumption of guilt had already been attributed to the 500 Indians named..And then, an Indian government official clarified that wrongdoing could not be attributed to 90% of the Indians named and that the investments were made in compliance with RBI rules using the LRS scheme. Most articles and stories on the subject, mentioned that investment in off-shore tax havens were in itself, not per-se illegal..Unlike the First Amendment in the United States, Freedom of speech in India is neither unfettered nor absolute. A constitutional bench of the Hon’ble Supreme Court has so re-iterated this position in Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India. Freedom of Speech, in India, including that of the media, is subject to reasonable restraints..It is incumbent on the media to convey and report facts with accuracy, to exercise restraint in divulging any information from an inconclusive investigation and prevaricating the readers to believe something, which is yet to be established..In India, LRS or the Liberalised Remittance Scheme was introduced by the RBI in 2004 which permitted transfer of funds by resident individuals overseas by an individual upto 25,000 USD. The LRS limit has been revised in stages depending on prevailing macro and micro economic conditions in the country. The present remittance cap stands at 2,50,000 USD. The permissible capital account transactions by an individual under LRS include opening of foreign currency bank accounts; purchase of property; making investments including acquisition and holding shares of both listed and unlisted overseas companies or debt instruments; acquisition of ESOPs; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes. With effect from August 5, 2013, setting up Wholly Owned Subsidiaries and Joint Ventures for bona-fide business objects, subject to the terms & conditions stipulated by the Government is also permissible. What is not permissible with LRS is also clearly defined..Not all investments made through tax havens are to hide and launder money. There are significant tax benefits to routing investments through these tax havens. It is important to mention that there is a difference between tax evasion and tax avoidance. The latter is not illegal and is considered legitimate tax planning..The Hon’ble Supreme Court in the matter of Vodafone International Holdings BV v. Union of India, held that.“tax planning may be legitimate provided it is within the frame work of law“..The Court went on to state,.“……. every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. …. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized….. If the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter…”..The RBI Governor has himself clarified, ‘…. there are legitimate reasons to have accounts outside’..In other words, it is perfectly plausible that many of the names on the list have legitimately invested their monies. Further, it is entirely a matter within the personal domain of an individual, how much wealth such individual has, what they wish to do with it, where, how and how much they invest it, so long as they don’t break the law. And as Abraham Lincoln quite rightly said, the ‘right to swing my fist ends where your nose begins’..The US Supreme Court has ratified that proposition in Whalen v. Roe, [429 U.S. 589 (1977)]. The court explained that individual interest in avoiding disclosure of personal matters, is a constitutionally protected right. Despite the First Amendment, even in the United States, the right of information is not absolute, and must be balanced against,.the potential risks to society which are to be prevented, the likelihood of their occurrence, the probability of preventing them through the measure to be implemented’ on the one hand and ‘the effects the measure has on the individual’s privacy rights and society at large’ on the other hand [Power, M., The Law of Privacy, Lexis Nexis Canada]..I’m not sure that test has been followed prior to making a disclosure of the entire list. Given that all investments made in Panama, were not illegal, it was perhaps pre-mature to put out a list of names without a due enquiry or wrongdoing attributable to these individuals. Not only have the time honoured reputations of these people been destroyed, their private information has been made public and at the risk of their security and invasion of privacy..One of the pillars of our democracy is based on freedom of the press and to be self-regulated. It is for the media to introspect and weigh whether the divulging of names as against the privacy right (and security too) of these individuals on the mere assumption of illegality was within the framework of legal disclosures..Payal Chawla with assistance from Hina Shaheen. The author is the founder of JusContractus, a Delhi-based lawfirm. This article is for general information only and is not intended to be legal advice and the reader is advised not to act upon it as such.
Payal Chawla.Earlier this month, we woke up to the news of the leak of the Panama Papers involving 11.5 million documents leaked from Mossack Fonseca, a law firm headquartered in Panama. Classified information was obtained by a German newspaper from an anonymous source, who in turn took the assistance of the International Consortium of Investigative Journalists (ICIJ) to investigate, analyze the documents. Over 400 journalists spread over 76 countries were involved in this mammoth task..The story grabbed eye-balls and was front page news. It had all the elements that made it newsworthy – world famous politicians, actors, sportsmen, acclaimed lawyers, tax havens, possible insinuation of tax evasion. There were also claims that the money was routed through these tax havens for the purposes of money laundering, terrorist and drug financing..After months of research, the story broke in early April, this year. Big names emerged, followed by denials, resignations, explanations, reports of leaders leaving their countries. In India, the rich and famous were named. Given the intensity of the research and the compelling headlines, the presumption of guilt had already been attributed to the 500 Indians named..And then, an Indian government official clarified that wrongdoing could not be attributed to 90% of the Indians named and that the investments were made in compliance with RBI rules using the LRS scheme. Most articles and stories on the subject, mentioned that investment in off-shore tax havens were in itself, not per-se illegal..Unlike the First Amendment in the United States, Freedom of speech in India is neither unfettered nor absolute. A constitutional bench of the Hon’ble Supreme Court has so re-iterated this position in Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India. Freedom of Speech, in India, including that of the media, is subject to reasonable restraints..It is incumbent on the media to convey and report facts with accuracy, to exercise restraint in divulging any information from an inconclusive investigation and prevaricating the readers to believe something, which is yet to be established..In India, LRS or the Liberalised Remittance Scheme was introduced by the RBI in 2004 which permitted transfer of funds by resident individuals overseas by an individual upto 25,000 USD. The LRS limit has been revised in stages depending on prevailing macro and micro economic conditions in the country. The present remittance cap stands at 2,50,000 USD. The permissible capital account transactions by an individual under LRS include opening of foreign currency bank accounts; purchase of property; making investments including acquisition and holding shares of both listed and unlisted overseas companies or debt instruments; acquisition of ESOPs; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes. With effect from August 5, 2013, setting up Wholly Owned Subsidiaries and Joint Ventures for bona-fide business objects, subject to the terms & conditions stipulated by the Government is also permissible. What is not permissible with LRS is also clearly defined..Not all investments made through tax havens are to hide and launder money. There are significant tax benefits to routing investments through these tax havens. It is important to mention that there is a difference between tax evasion and tax avoidance. The latter is not illegal and is considered legitimate tax planning..The Hon’ble Supreme Court in the matter of Vodafone International Holdings BV v. Union of India, held that.“tax planning may be legitimate provided it is within the frame work of law“..The Court went on to state,.“……. every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. …. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized….. If the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter…”..The RBI Governor has himself clarified, ‘…. there are legitimate reasons to have accounts outside’..In other words, it is perfectly plausible that many of the names on the list have legitimately invested their monies. Further, it is entirely a matter within the personal domain of an individual, how much wealth such individual has, what they wish to do with it, where, how and how much they invest it, so long as they don’t break the law. And as Abraham Lincoln quite rightly said, the ‘right to swing my fist ends where your nose begins’..The US Supreme Court has ratified that proposition in Whalen v. Roe, [429 U.S. 589 (1977)]. The court explained that individual interest in avoiding disclosure of personal matters, is a constitutionally protected right. Despite the First Amendment, even in the United States, the right of information is not absolute, and must be balanced against,.the potential risks to society which are to be prevented, the likelihood of their occurrence, the probability of preventing them through the measure to be implemented’ on the one hand and ‘the effects the measure has on the individual’s privacy rights and society at large’ on the other hand [Power, M., The Law of Privacy, Lexis Nexis Canada]..I’m not sure that test has been followed prior to making a disclosure of the entire list. Given that all investments made in Panama, were not illegal, it was perhaps pre-mature to put out a list of names without a due enquiry or wrongdoing attributable to these individuals. Not only have the time honoured reputations of these people been destroyed, their private information has been made public and at the risk of their security and invasion of privacy..One of the pillars of our democracy is based on freedom of the press and to be self-regulated. It is for the media to introspect and weigh whether the divulging of names as against the privacy right (and security too) of these individuals on the mere assumption of illegality was within the framework of legal disclosures..Payal Chawla with assistance from Hina Shaheen. The author is the founder of JusContractus, a Delhi-based lawfirm. This article is for general information only and is not intended to be legal advice and the reader is advised not to act upon it as such.
