Paradise Papers Fallout
The Undiscovered Asian Offshore Tax Haven
CommonWealth Magazine has been scouring the Paradise Papers since their release in late 2017 and discovered that one of Taiwan’s wealthiest families has parked a large share of its assets in overseas tax havens. At the same time, Taiwan was recently ranked as one of the world’s most financially secretive countries. Is Taiwan really that deeply tied to the seamy world of money laundering and tax evasion?
The Undiscovered Asian Offshore Tax HavenBy CommonWealth Staff
From CommonWealth Magazine (vol. 646 )
In the second half of 2018, Taiwan will undergo an on-site evaluation by the Asia/Pacific Group on Money Laundering (APG), and if the group finds Taiwan has not met international standards, it could adversely affect the country’s financial and trade standing.
The London-based Tax Justice Network (TJN) has already ranked Taiwan eighth among 118 jurisdictions for secrecy in its Financial Secrecy Index. Among 20 indicators, Taiwan was hurt for not signing on to implement the Common Reporting Standard, its low number of bilateral tax treaties, and not requiring companies to comply with a country-by-country reporting standard or disclose unilateral tax rulings.
TJN writer and researcher George Turner said in a phone interview with CommonWealth Magazine that the Tax Justice Network began paying attention to Taiwan three years ago but struggled to analyze its role in the offshore financial world because of international organizations’ lack of data on Taiwan.
That changed in July 2017 when researchers with the University of Amsterdam’s CORPNET group used big data to analyze a database of globally listed companies and found that Taiwan was “one of the most prominent destinations for offshore capital in the world.”
“The prominence of Taiwan is driven by Taiwanese technological companies, which often own Chinese firms through Hong Kong (33 percent) and Caribbean Islands (20 percent) or own Hong Kong firms through Caribbean islands (12 percent),” their report said. In other words, 65 percent of Taiwan’s listed companies use offshore financial centers.
TJN decided to do a full review of Taiwan’s legal system, and collected complete data on Taiwan for the first time with the help of certified public accountant and tax consultant Lyon Chung to rate its practices, and the results were surprising.
Taiwan had never shown up on offshore tax haven radar screens, Turner said, and this was the first time it was found to have such a high degree of secrecy.
As a result of the rating, Taiwan vaulted into the top 10 in the TJN’s Financial Secrecy Index with a score of 743.37. The seven jurisdictions ranked even more secretive were Switzerland (1,589.57), the United States (1,298.47), the Cayman Islands (1,267.68), Hong Kong (1,243.68), Singapore (1,081.98), Luxembourg (975.92), and Germany (768.95). Even traditional tax havens such as Guernsey, Panama and the British Virgin Islands finished below Taiwan.
The ranking was based on a combination of the jurisdiction’s scale weighting and secrecy score. Taiwan’s financial sector accounts for only 0.5 percent of the global market for offshore financial services (compared with 22.30 percent for the United States) and is not considered very important on a global scale. So clearly its high position in the rankings was because of its high score for secrecy, which ranked 28th among the 118 jurisdictions evaluated. (Table 1)
The ranking pointed to Taiwan as finally emerging as an undiscovered “Asian offshore tax haven.”
Wang Family Goes Big in Tax Havens
Taiwan’s proficient use of offshore tax havens was confirmed by a closer look at the “Paradise Papers” released by the International Consortium of Investigative Journalists (ICIJ).
The “Paradise Papers” are the most recent cross-border investigation conducted by ICIJ (first revealed in November 2017) and the third of the ICIJ investigations CommonWealth Magazine has participated in following the “Offshore Leaks” (2013) and the “Panama Papers” (2016). The “Paradise Papers” database, obtained by German daily Suddeutsche Zeitung (literally South German newspaper), consists of more than 13.4 million electronic documents from the customer files from Bermuda-headquartered legal firm Appleby and Singapore-based trust and corporate services provider Asiaciti Trust.
There are 1,005 Taiwanese individual and corporate customers in those records, with the family of the late Formosa Plastics Group founder Wang Yung-ching well represented.
CommonWealth Magazine was the only Taiwanese media to obtain the documents, and after combing through them discovered that aside from Queen Elizabeth of England, some of the other customers of the 119-year-old Appleby were Wang (who died in 2008) and his brother, the late Wang Yung-tsai (who died in 2014). The first record of them having contact with the firm was in 2001.
According to the Paradise Papers, from 2001 to 2005, the Wang brothers set up five big trusts with the Washington-based law firm of George N. Harris and Appleby, dividing them up by location. Private investment firms the Wang brothers controlled in Taiwan, the United States and China were folded into the trusts step-by-step.
In a closer analysis of the “Paradise Papers,” Chang Gung Memorial Hospital’s annual reports and information from the Market Observation Post System for listed companies in Taiwan, CommonWealth found that the Wang family had NT$256 billion in assets in the five offshore trusts when Wang Yung-ching died in late 2008.
It also had stock worth NT$261.24 billion in Taiwan, but nearly three-quarters of that was in the hands of Chang Gung Memorial Hospital. The actual NT$74.50 billion in net assets held by the family in Taiwan was only a fraction of the assets it held overseas. (Table 2)
Once the Wang brothers parked their assets in trusts, their children and grandchildren had no way to inherit those assets. But even if they can only collect dividends, they will still be extremely well off, considering the trusts’ substantial holdings in the four major companies of the Formosa Plastics Group.
The “Paradise Papers” showed that as of the end of 2008, the five trusts held 15.1 percent of Formosa Plastics Corp., 8.2 percent of Nan Ya Plastics Corporation, 18.2 percent of Formosa Chemicals & Fibre Corp., and 2.9 percent of Formosa Petrochemical Corp. They also held 73.3 percent of Formosa Plastics Corp., U.S.A.
The Formosa Plastics Group’s establishment of offshore companies and trusts is more the rule than the exception. About 65 percent of listed companies in Taiwan have set up offshore companies. The Ministry of Finance once disclosed that Wang Yung-ching was the biggest payer of estate taxes in Taiwan, but much of Wang’s estate overseas has not been taxed, indicating that Taiwan’s tax laws are still inadequate.
Table 1: Taiwan was grouped with Switzerland and the Cayman Islands among the top 10 “secrecy jurisdictions” in the world, ranking eighth. (Source: Taxation Justice Network, 2018 Financial Secrecy Index)
Table 2: The Wang family’s asset value and asset distribution at the end of 2008
Table 3: ICIJ documents revealed that half the Wang family’s assets are overseas; even after the Wang brothers died, the family still retained firm control of the Formosa Plastics Group through stock held in trusts.
Note: FPG – Formosa Petrochemical
FCFC – Formosa Chemicals & Fibres
FPC – Formosa Plastics USA
Translated by Luke Sabatier.