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What they say vs. what they do: Canada's real position on tax havens

In an article for the Canadian Centre for Policy Alternatives, Journalist Paul Weinberg writes that Canada continues to let billions leave the country tax free. 

Ottawa (22 July 2015) — If you believe federal cabinet ministers, Canada is cracking down on corporations and individuals that use tax havens to avoid paying their fair share. The reality is very different.

As Canadians for Tax Fairness show, the federal Conservatives are making it easier to use tax havens. Cuts to the Canada Revenue Agency mean those using tax havens are less likely to face scrutiny. Internationally, the Conservative government has opposed measures to make it harder for corporations to use tax havens, even though Canadian corporations have an estimated $199 billion in tax havens.

The following is an excerpt from an article by journalist Paul Weinberg. It originally appeared on the Canadian Centre for Policy Alternatives website.   

The Big Heist

On April 12, 2013, the late Jim Flaherty, then Canada’s finance minister, made an unpublicized trip to Bermuda, one of corporate Canada’s tax havens of choice, to offer his government’s support and reassurance in a time of uncertainty. G8 countries, led by the United Kingdom, France and Germany, were discussing how to co-ordinate national efforts to close tax loopholes and discourage capital flight into offshore tax shelters of the kind offered by the tiny Caribbean nation. Though Flaherty had included a tax cheat snitch line in that year’s budget, many observers questioned Canada’s commitment to the G8 project. Then, as now, they have good reason to doubt.

Reports out this spring show the tax evasion problem is not going away, with up to $199 billion in corporate assets sitting in offshore accounts, out of reach of Canadian tax collectors. Meanwhile the government is cutting resources from the only department with the power to claw some of that money back, depriving itself of a stable revenue source for new infrastructure, public services and reducing income inequality.

There is nothing illegal about this situation, but it is clearly not desirable, and with the right political will it is almost certainly fixable. 

Canada’s Caribbean connections

Alain Deneault mentions Flaherty’s Bermuda trip in his book Canada, A New Tax Haven: How the Country that Shaped Caribbean Tax Havens is Becoming One Itself, out in English this May. The University of Quebec in Montreal (UQAM) professor emphasizes how, by 2012, the banks of the British overseas territory had become a repository for Canadian financial assets totalling about $12 billion. This was more than a case of Canadian banks, which established themselves in the Caribbean in the early 20th century, exploiting a half-century-old loophole. (The tax haven phenomenon exploded after the Second World War with the flow of excess Marshall Plan–era Eurodollars from the U.K. into the banks of the British Caribbean.) As Deneault describes in his book, Canadian lawyers and policy makers figured prominently here in the establishment of the institutional frameworks for low-tax or tax-free environments. 

So when Bermuda signed a tax information exchange agreement with Canada in 2011, you could argue it continued a long and profitable (for some) pattern of bilateral co-operation. The treaty allows Canadians to register their money in the island’s local banks and then have it transferred back to Canada as tax-free dividends. Of course, we can’t be too hard on just one country or even one region. Deneault estimates there are close to 80 tax havens in the world including Switzerland, Ireland, Luxembourg and beyond. Typically, these countries impose little or no tax on corporate and sometimes personal deposits. Their financial institutions offer security, privacy and secrecy for those seeking to stash their money where prying eyes and government tax collectors cannot reach. The United States, European Union and several other Organization for Economic Co-operation and Development nations are grappling with the contagion of tax avoidance by global companies, with its potential to hurt government finances. But, as Deneault discovered in researching his book, Canada is marching to a different beat. 

“Officially, Canada shows solidarity with other western countries about tackling tax avoidance. I have informants in other countries, people whom I talk to when I travel, and they say that Canada, in the meeting rooms, is also always fighting against any kind of proposal that would make it difficult for corporations to use tax havens,” he says in a recent interview. Deneault highlights how Canada, as a major player at the World Bank and International Monetary Fund, provides representation for smaller nations in the English-speaking Caribbean (The Bahamas and Barbados) and Ireland that do not have seats at either of these bodies, and which, incidentally, happen to be major havens.

“Canada is trying to look like its creatures (tax havens) to have the same strategies to attract capital,” says Deneault. “You will find that in Alberta with respect to oil, you will find that in Ontario with respect to the mining industry.” Real tax reform, he maintains, begins with examining how Canada has morphed into a tax haven itself, with exceptionally low corporate tax policies at the federal and provincial levels, and a number of legal loopholes that allow corporations and wealthy investors to avoid paying their fair contribution to Canada’s social wealth. 

Learning to love the tax haven

What looks like a historical trend of Canadian government support for tax havens under successive Liberal and Conservative governments has actually taken on a sharper ideological focus in the Harper years, according to Dennis Howlett, executive director of Canadians for Tax Fairness. “This government is not that interested in increasing government’s capacity to do anything about anything. They are not interested in raising more revenue,” he says. 

More pertinent to the tax haven discussion, the government also doesn’t appear too worried about where the money is leaking out of public revenues. Howlett points to the 2013 complaints of Kevin Page, then parliamentary budget officer, about difficulties getting data from the Canada Revenue Agency for his analysis on tax avoidance. Not to be deterred, the tough nuts at Canadians for Tax Fairness pursued their own investigation based on data from Statistics Canada and investment information from Canadian corporations. What they found created quite a stir this spring.

According to the group’s research, as much as $199 billion in Canadian corporate assets is sitting in offshore jurisdictions, most of them countries with little discernable economic activity beyond a fully functional banking sector. That includes $71 billion in Barbados and $36 billion in the Cayman Islands. As Denault explains, Barbados has a population of fewer than 300,000, but the former British colony is the third largest holder of offshore Canadian money after the U.S. and the U.K. Keep in mind these figures represent Canadian corporate money abroad and do not include funds of individual Canadians that may also be sitting in tax havens, which is more difficult to determine. 

CRA spokesperson Jelica Zdero says the agency is “committed to protecting Canada’s revenue base and takes offshore non-compliance very seriously,” adding “[t]ax evasion and aggressive tax avoidance can lead to significant taxes, interest and penalties.” She says the CRA has implemented new anti–tax avoidance measures and is working with Canada’s treaty partners “to gather data, intelligence and knowledge from these sources to address offshore non-compliance.” 

Howlett counters that the federal government has cut about 3,000 positions from the CRA, many of them tax auditors from the very sections meant to investigate complex tax avoidance accounting schemes. He applauds the promise in the 2015 federal budget to invest $83.5 million over the next five years in the CRA’s campaign to root out international tax evasion and aggressive tax avoidance. But Howlett also notes the CRA’s budget was reduced by more than half a billion dollars in 2012–13. “It is good that [Finance Minister Joe] Oliver has put money back into the CRA. But this doesn’t replace damage done over the past several years.” 

More information:

The Big Heist

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