Has Canadian Corporate Tax Haven Use Stalled?

The short answer is - not likely. But the latest Canadian direct foreign investment figures hold some good news for taxpayers fed up with the multi-billion corporate use of tax havens.

It's  the first significant decrease in in a decade in the total amount of corporate money in the top 10 tax havens.  And as a matter of fact it has fallen by $11 billion. The total now stands at $261 billion at the end of 2016, down from $272 billion in 2015.  The decline of 4% is modest and within the margin of error but it is a good sign.  Much of that decrease is traceable to a 73% drop in Canadian investments in Ireland in 2016. Decreases were also recorded for Luxembourg and Bermuda. 

"It is too early to be certain if this dip is an emerging trend or just a blip as has happened before," says Dennis Howlett, executive director of Canadians for Tax Fairness.  "But when you compare this to data from other countries in previous years this could be a sign that global efforts to curb corporate profit shifting to tax havens may be paying off."

But make no mistake - billions are still flowing to tax havens. Barbados continues to be a top destination.  In 2016, $6 billion more corporate money was booked there, raising the total to $68 Billion. GoldCorp, Barrick Gold, Fortis, PetroCanada and Gildan are among the Canadian companies who have set up subsidiaries in Barbados.  The Canada-Barbados Tax Treaty facilitates booking profits there and repatriating the dollars back to Canada,  tax-free. There are similar deals to be had with Luxembourg and Cayman Islands. And they remain the second and third preferred offshore destinations for Canadian money.

GLOBAL EFFORTS

Canada and other OECD and G20 countries  have been countering corporate abuse of tax havens as part of their Base Erosion and Profit Shifting action plan. Tax haven countries and territories are being pressured to be more transparent under the threat of sanctions if they do not comply. 

"Many of these tax havens have populations of less than a million people, yet every year tens of billions in  Canadian corporate money continues to be funnelled offshore," says Howlett. "While some of the Canadian money going to tax havens may be invested in businesses with economic substance, much of it uses tax havens to shift profits and reduce taxes."

The Statistics Canada figures only represent the funds that are reported, mostly by corporations.  It does not capture the money hidden in tax havens by wealthy individuals using anonymous companies, trusts or other schemes. Howlett estimates there could be another $100 to $150 billion in unreported offshore money.

Over the past two federal budgets,  the Canada Revenue Agency budget has been boosted by nearly $1B to fight tax evasion and global tax dodging. But Howlett says it is unlikely the recent decreases are due to stepped up CRA enforcement.  "So far most of their efforts have been targeted at wealthy individuals using tax havens to evade taxes," he says. Official Statistics Canada figures do not reflect these hidden flows.

Canadians for Tax Fairness and its partners in the Global Alliance for Tax Justice have been campaigning for international action on tax havens. Some progress is being made, but billions of dollars are still being lost in revenue by governments around the world. While both developed and developing countries are negatively affected, the impact on poor countries is much worse as a percentage of their economy. Africa loses $60 billion a year that could have been invested in health and education. In fact, Africa is losing up to ten times as much money in illicit financial flows as it receives in aid.