Wealthy multinationals are getting a reality check. They are waking up to a world no longer willing to look the other way while they play the tax dodging game.
The most powerful example is the recent European Commission ruling that Apple owes Ireland $19 billion in unpaid taxes. The tax dispute was the result of the Irish government making a sweetheart deal with Apple that has lasted more than a decade. The money is to be paid to Ireland – a small country of 4.6 million, which could afford to pay every man, woman, and child over $4,000 each.
The European Commission had found that in 2014 alone, Apple managed to pay just 0.005% tax on its billions of profits across Europe, Africa, India, and the Middle East. Imagine you or I tried to get away with that? The sum has angered Tim Cook, who took over as Apple’s CEO from Steve Jobs. Cook has famously called the ruling “political crap.”
We say enough of that patronizing sense of entitlement that hurts ordinary taxpayers, small business owners and corporations that try to do the right thing. Canada needs to seize on this momentum to take a bite out of Canadian corporate tax dodgers.
The new Liberal government has taken steps to curb wealthy individuals from using tax havens. A good start. But it addresses about a third of the tax haven problem. Canada has yet to tackle corporate use of tax havens.
Some corporate tax avoidance is technically legal. But because Canadian rules are vague and hard to enforce, boundaries are often pushed. It is time for Canada to get tough on requiring corporations to prove there is a legitimate reason for an offshore subsidiary. Tax haven abuses by corporations could be curbed if Canada made economic substance a requirement for any offshore subsidiary to be recognized for tax purposes.
Since when do corporations get to tell elected governments what they are willing to pay in taxes?
They depend on tax-funded public services and infrastructure – good schools, a healthcare system for workers, roads and internet highways. And they should pay their fair share of taxes to ensure Canadians get the country we deserve. The tax dodge game undermines the very societies corporations depend on. That’s hardly strategic. But it is greedy. It also sets the stage for unfair competition where medium and smaller businesses who can’t take advantage of offshore tax havens are put at a serious disadvantage.
The ruling is deeply significant. It says the European Union will no longer allow foreign companies to get away with avoiding taxes – and could lead to a whole new set of tax rules there and in the US. But there is a long way to go.
Tech giants like Facebook, Google, Netflix, and Microsoft, don’t pay income or sales taxes on their profits in Canada, simply because they sell goods and services online. Canadian tax law hasn’t caught up to that digital economy. This is an untenable situation. It’s also putting a squeeze on Canadian internet businesses and media industries – as more advertising money goes to foreign internet giants leading to job losses for Canadian newspapers and broadcasters.
That’s why Canadians for Tax Fairness has an online campaign calling for digital giants to pay their fair share of taxes. How much is Canada losing? It’s hard to know, since multinationals rarely disclose their profits in each country. However, we estimate hundreds of millions of dollars lost in sales tax revenues to federal and provincial governments every year. For income taxes, that number soars into the billions. Right now, that money is headed straight to offshore tax havens, where no country is able to tax it.
Ordinary citizens - and now some of their governments - the world over have been standing up and pushing back. It is time to modernize Canada’s tax laws, level the digital playing field, and create a world where corporations pay their fair share.