Taxen Haven Users Should be Disqualified from Government Contracts

In its time, the Irving empire has had plenty of federal contracts — all of them lucrative, many of them controversial.

So it wasn’t a surprise to hear that a federal cabinet committee is reviewing Irving’s $26 billion sole-source (but still unsigned) contract to build a fleet of warships for the Royal Canadian Navy.

If the committee truly wants to do right by the rest of us, it should consider two questions. Should a corporation that pursues aggressive offshore tax avoidance tactics be eligible for a government procurement contract? Can a government deliver a fair tax system while closing deals with companies whose business models include dodging what is already the second-lowest corporate tax rate in the G7?

K.C Irving was the granddaddy of Canadian tax haven abusers. He stashed at least $3 billion of his assets in Bermuda as far back as the late 1960s. His progeny still follow that tradition. But they aren’t the only Canadian CEOs with more than a holiday interest in Barbados, the Cayman Islands and Liechtenstein. The Irving style of tax-dodging seems downright quaint when compared to the complicated tax setups behind today’s pharmaceutical manufacturers, mining companies, tech companies and banks.

Tax avoidance has become a multi-billion-dollar industry on its own. Canada’s prime ministers and finance ministers have known all about it for decades. They love to give speeches about tackling tax havens — but seem to lack the nerve to make it happen.

The offshore industry, helped along by some of the most recognizable names in the banking and accounting world, is deliberately designed to make tracking difficult. A decade of cuts to the Canada Revenue Agency’s capacity on international tax avoidance hasn’t made it any easier. And although the federal government does have an ‘integrity regime’ in place that disqualifies suppliers convicted of tax evasion from doing business with Ottawa, the truth is that in its current state, the CRA just can’t keep up with the major players and has landed few big corporate convictions.

So there’s much to be done on that front. But what if, in the meantime, the government used its purchasing power to encourage better behaviour from its larger suppliers? It already disqualifies potential contractors who fail to follow labour codes and environmental standards. A responsible, ethical attitude to tax practices should be no different.

Britain and the EU have raised the bar on dealing with tax dodgers, with varying degrees of success. They persist despite massive corporate pushback from the likes of Google, Amazon, Starbucks and Ikea. We live in a world where multinationals buy companies for the sole purpose of reducing their taxes, where a lawyer can set up a foreign shell company in less than a day, where foreign subsidiaries are set up on tiny islands thousands of miles away from their real markets.

It is clever, cynical and constant. Globally, it costs governments trillions. And at least $199 billion Canadian is stashed offshore, untaxed, an annual loss of at least $8 billion a year to government revenues.

Anti-taxers argue that it is their right to use every means possible to pay bargain-basement tax rates — or no tax at all. They used to argue that they invested that money back into their companies. But there’s little evidence of that happening.

Canadian taxpayers want their money spent wisely. They have a right to expect the best value for their money — and that extends to the expectation that their governments will only do business with good corporate citizens.

Many Canadian businesses pull their weight in the country where they live and profit. They deserve our respect. More than that, they deserve our business and to be considered as key players in an industrial strategy. That should be the ‘sniff test’ as Prime Minister Trudeau’s cabinet lays out changes in how Canada deals with suppliers.

This piece originally appeared in IPOLITICS.