What are the panama papers?

Here's your cheat sheet to the news story that involves soccer star Lionel Messi and cost the Prime Minister of Iceland his job
Welcome to Panama sign on the border with Colombia

The Panama Papers. Sounds like a good title for a mystery novel with a seafaring, khaki-wearing international spy. But in real life, it's a tale of some very, very rich people being accused of hiding their money in the Central American country of Panama.

Why would they do such a thing? To avoid paying taxes. And if these papers are correct it means that dozens of countries around the world altogether are losing trillions of dollars.

We get it. A story about taxes? Snore. But did we mention that some of the people named in the report are world leaders? Not really interested?

Well, what about the fact that one of those leaders, Iceland's Prime Minister Sigmundur David Gunnlaugsson, already stepped down on Tuesday because thousands of Icelanders gathered to protest him being named in the Panama Papers? Look, there's a picture of it right here...

Yeah, what that guy said. Down with that sort of thing! Anyway, still not impressed? What if we told you that Barcelona soccer god Lionel Messi is one of those accused? Wait, that Messi? Not Messi!


To be clear, these are just accusations (that means it's not proven and no one is going to jail yet). But if it's true, it's actually a very sad story about how the world's super rich are kind of stealing from everyday people around the world.

The shell game

The Panama Papers are 11.5 MILLION documents that were released from the private files of a law firm in Panama Mossack Fonseca. These papers claimed that thousands of shell companies were linked to this firm and hundreds of clients from all around the world. A shell company gets its name from the fact that it just looks like a company from the outside — inside it doesn't really do, make, or sell anything. Sounds a waste of time? Hold on to that thought a moment.

Why taxes matter and why people are angry

Taxes are essentially a fee people pay to their government to cover the costs of running their country. But people generally pay an amount based on how much money they earn. A wealthy person pays more taxes than a poorer person because they have more money to spare. But, every country has a different tax rate (that's how much money they have to pay). Some have high tax rates. Others have low ones.

An extremely wealthy person has to pay a lot in taxes. But there are ways around this and one of those is making a shell company somewhere where taxes are very low. Somewhere like Panama. Having the shell company there means that a very rich person can pay much lower taxes on the money that they earn.

What does this mean in the end? If one or two people do this, it's not that big a deal, really. But when hundreds of the wealthiest people in a country do it, it means that a country can be losing out on millions, even billions of dollars in taxes. So now that country has much less money to pay for the things that everybody needs.

That's why the Panama Papers are so explosive as a story. If they're correct, they are proof that while lots of everyday people are paying their taxes, many very rich ones (as well as politicians and public officials) aren't pitching in their fair share. Believe me, when you start paying taxes yourself, you'll realize that's definitely worth getting angry about!

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