Panama Papers: How Ottawa made corporate tax evasion easier

by Barry Weisleder
Question: When does a law against tax cheating become a huge loophole that legalizes giant corporate tax avoidance?
Answer: When a capitalist government is involved.
Does that seem a tad cynical? Well, consider this.
For decades big businesses and rich individuals have been hiding their ‘earnings’ in overseas tax havens and dummy corporations. As a result, the Canada Revenue Agency has been deprived of billions of dollars of tax revenue – and that becomes a convenient government argument for cutting social and infrastructure spending, for freezing public sector workers’ wages, slashing pensions, and reducing work place health, safety, and environmental protection.
In 2010, Ottawa joined an initiative of the Organization of Economic Co-operation and Development to force tax havens to be more transparent. They started signing Tax Information Exchange Agreements (TIEAs) with notorious tax havens such as the Cayman Islands, Jersey, the Isle of Man and the British Virgin Islands, where tax rates are close to zero.
But at the same time, Ottawa’s tax code was altered to allow any Canadian multi-national corporation doing business in a TIEA partner country to bring profits home tax-free. American multinationals have to pay tax when they repatriate international profits. But, in Canada, the TIEAs mean that profits can be declared in a tax haven, where there is little or no tax, and brought back without paying a penny more.
Many of the biggest firms on the Toronto Stock Exchange now have a presence in tax havens and use Canada’s treaties to reduce their tax bill dramatically at home. One company, Gildan Activewear (the world’s largest T-shirt maker), reduced its taxes by more than 90 per cent in 2015.
While it seems “there is no money” to ensure there is clean water in many indigenous communities, or to improve public transit, or for youth employment, money stashed in tax havens is piling up rapidly. The storehouse of stacked cash is up by more than 50 per cent in the Cayman Islands and in the Bahamas since 2011, when their TIEAs came into force. It rose a staggering 600 per cent in Panama since 2013 when its TIEA became law.
Canada has now signed 23 TIEAs, with seven more under negotiation. And so far, no disclosure of the names of those guilty of tax fraud.
The new Justin Trudeau Liberal government pledged to end the Stephen Harper Conservative regime’s “tax unfairness”, and to beef up CRA enforcement. When asked about this loophole, Finance Minister Bill Morneau, a former Bay Street CEO, said only that the agreements would be evaluated as part of a planned overall review of tax policy.
No hurry there. And likely, no real action. Not if it involves biting the hand that feeds a government of, by, and for the 0.1 per cent.
Postscript: Since this article was written in June, a Federal Court judge ordered the Royal Bank of Canada and Citibank, N.A. to hand over all transation information for accounts held by Cayman National Bank Ltd. between 2009 and 2015. This is to determine whether Canadian residents used these banks to transfer money home without reporting it.
In another development, the Canada Revenue Agency revealed that between 2010 and 2015, 662 people were convicted for tax evasion or tax fraud overall, but only 49 had “money and other assets located offshore,” according to documents obtained by the Toronto Star. The CRA issued fines totalling $13.4 million since 2010 – less than half the $35.7 million in taxes the cheats were caught evading.
In terms of all the banks and all the avoided taxes involved, the description ‘tip of the iceberg’ would be an understatement of the case.