How the rich and the powerful dodge taxes through shell companies in tax havens is back under international spotlight after a huge leak of financial documents last week. The Pandora Papers, comprised of some 12 million files, have exposed the tax haven links also of prominent Turkish companies such as the Ronesans, Calik and Cengiz holdings, which are close to President Recep Tayyip Erdogan and have thrived on public projects under his rule.

A similar leak in 2017 had shown that others from Erdogan’s inner circle, including relatives of his son-in-law and the then-prime minister, had set up companies in Malta that enabled them to avoid paying taxes in Turkey. The revelations led to no legal consequences at the time and the new ones are not expected to be any different, as Turkey remains without functional legislation to discourage money transfers to tax havens. Such transactions have continued unobstructed as Ankara looks the other way despite a 2006 legal amendment designed to curb the flow of money to tax havens.

Tax havens, or offshore financial centers, are generally countries or places where foreigners enjoy lax rules to set up companies amid minimal tax liability, often coupled with a financial secrecy shield, which lay the ground for firms and individuals to avoid or evade paying taxes on revenues they have earned elsewhere. Many firms set up in such jurisdictions are shell companies used for schemes to dodge taxes in home countries and stash away wealth. 

To curb the loss of tax revenues that could otherwise benefit public education, health care or social welfare programs, many countries and international organizations have introduced measures to tackle the phenomenon. The European Union and the Organization for Economic Cooperation and Development, for instance, have published lists calling out countries that encourage abusive tax practices or refuse to make commitments to transparency and exchange of tax information. On the national level, governments have resorted to withholding tax measures in a bid to penalize tax dodging via tax havens.