The Cost of Being Associated with Tax Havens

With the recent leak of millions of confidential documents, the Panama Papers illuminate the way that companies and individuals shield their assets from reporting with offshore shell companies. The leak has rocked companies and government leaders, even toppling a head of government. Global investors lost confidence in firms with offshore shell companies in the days after the leak. Mossack Fonseca, the Panama-based law and corporate services firm at the centre of the Panama Papers, has managed more than 214,000 shell companies since the early 1970s. Shell companies, created for business transactions only, were long used to evade taxes and to shelter companies from full reporting. Because so much of their activity was hidden, it was hard for researchers and government agencies to study shell companies and inform investors. The Panama Papers leak allows a whole new look at how shell subsidiaries may or may not add value to firms.

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