Corporate Canada's $199 Billion Secret

Luxembourg has been a prime destination for Canadians looking for a tax haven.

Secretive. Discreet. Accommodating.

These features were so attractive that Canadian companies, including a federal pension fund, sent $36 Billion there in 2013. But new Statistics Canada data shows that more than $5Billion got pulled out of Luxembourg in 2014.

What happened? Has Canada finally started to act on its promise to tackle tax havens?

Likely not. Government action to date has not matched the three year old promise to crack down on those who shuffle money out of the country to avoid paying their taxes.  Last month’s federal budget promised $16million a year for the Canada Revenue Agency to hire more auditors to go after aggressive tax planning that uses tax havens. But that hardly makes up for more than $600 million was cut over a two year period in previous years.

More likely it could be the result of a leaked hard drive from accounting giant PriceWaterhouseCoopers. The information from the so-called LuxLeaks shows that PwC secured secret tax deals for Pepsi, Ikea and 340 other companies.  PwC was good at its job. Some of those clients paid less than 1 per cent tax. And it isn’t just the corporate world that is complicit.  That leak also showed the agency that invests Canadian civil servants' pensions set up a complex scheme of shell companies to avoid paying tax.

Granted, the whole deal made for some bad corporate publicity. The Koch Brothers, FedEx and others on the list can easily buy the publicity machine to tell us how they are just playing by the rules. In the meantime, the only person facing prosecution is the junior level accountant, Antoine Deltour, who turned the information over to journalists.

Luxembourg is just the tip of the iceberg. There is $199Billion of Canadian money in the top ten tax havens. Prime destinations for the money are Barbados ($71B) and Cayman Islands ($36B) – two notorious tax havens that have been a consistent favourite for Canadians seeking to avoid paying taxes. In the one year period between 2013-2014, Canadians funnelled $8B to those two havens alone. Canadian corporations’ assets held in Switzerland jumped to more than $11B – tripling what it was in 2012. These calculations are based on Statistics Canada’s Foreign Direct Investment data. They include funds officially reported by Canadian corporations in these countries.  They generally don’t include money held in tax havens by individual Canadians who often don’t report on their funds hidden in tax havens because they can count on them to keep them secret.

Canada and its global partners can’t keep relying on whistleblowers, snitch lines and investigative journalists to assure the integrity of our tax system. There is little evidence  government has the political will to end this.

It is estimated that Canada loses at least $7.8 Billion each year from tax haven schemes. The practice hurts both federal and provincial economies. It also undermines public confidence in our tax system.

The world of tax havens is a murky one inhabited by the very wily and the cynical. But that doesn’t mean we shouldn’t take them on.

Currently, the money heads offshore untaxed. Applying a withholding tax of 1 per cent of all money sheltered in recognized tax havens would be a good start. So would having the Parliamentary Budget Officer do an official Tax Gap estimate that would show Canadians how much tax revenue is lost as a result of this practice.

And as important as investigative reporting is to this issue, it is time our national revenue agency assigned some wily and skillful guardians for Canada’s revenues.