C4TF REPORT: Pandemic Profits and the Public Purse

C4TF Report: Pandemic Profits and the Public Purse, by D.T. Cochrane
Friday, 14 May 2021
 
Fifty of Canada’s largest companies made record profits during the Covid-19 pandemic, while many paid lower effective tax rates, many benefited from tax havens, and a handful received support through the Canada Emergency Wage Subsidy (CEWS) program. Amongst the 50 record-setting companies, 37 had an effective tax rate below their combined federal-provincial statutory rate, 34 had at least one identified subsidiary in a tax haven, and at least 7 of the 50, or their subsidiaries, benefited from CEWS. The 50 record-setters grew their profits by more than 50%. Cash-holding increased for 39 of the 50 companies by a combined C$26.4 billion. The record-setters include controversial pipeline company TC Energy, residential REIT Minto Apartments, and the recently privatized Hydro One.
 
 
Read the full report text below.
 
 
 

C4TF REPORT: PANDEMIC PROFITS AND THE PUBLIC PURSE

Tax Dodging and Wage Subsidies in 50 Firms
 
A Canadians for Tax Fairness Report
By D.T. Cochrane
14 May 2021
 
 
HIGHLIGHTS
  • 50 of Canada’s largest companies made record profits in 2020
  • At least 7 of these companies, or their subsidiaries, collected federal wage subsidies through the CEWS program
  • 104 high-profit Canadian companies had pandemic profit margins greater than their historical averages
  • 37 of the record-setting companies had an effective tax rate below their combined federal-provincial statutory rate
  • 34 of the companies had at least one identified subsidiary in a tax haven
  • Cash-holding increased for 39 of the companies by a combined C$26.4 billion
 
 
Canadians for Tax Fairness has identified 50 Canadian companies that reaped record profits in 2020. The companies collectively added $13.4 billion to their bottom line. At least seven of the record-setting companies, or their subsidiaries, collected the Canadian Emergency Wage Subsidy (CEWS).
 
Almost three quarters of the 142 companies examined—those with over CAD$100 million in annual profit — had higher profit margins in 2020 than their average margins over the previous 20 years.
 
Thirty-seven of the 50 record-setting companies had effective tax rates (ETR) below their combined provincial and federal statutory corporate income tax rate. Five of the companies either paid no income tax or recorded a net tax benefit. Six of the seven CEWS recipients had an ETR below the statutory rate.
 
More than two-thirds of those with record profits had at least one subsidiary in a known tax haven, which may explain some of the lowered income tax bills.
Thirty-seven of the companies increased their dividend payout by a combined $3.6 billion.
 
PROFITEERING C.E.W.S. RECIPIENTS
 
C4TF identified seven of the record-profit making companies, or their subsidiaries, as receiving federal CEWS subsidies. The leader among the seven was Couche-Tard, which is controlled by Quebec billionaire Alain Bouchard. The other six were CCL Industries, Tourmaline Oil, Alamos Gold, Canfor, Interfor, and Enghouse Systems.
 
The first four—Couche-Tard, CCL, Tourmaline, and Alamos—also have an identified subsidiary in a known tax haven jurisdiction. Additionally, those four increased their dividend payout in 2020.
 
That means it is possible these companies are avoiding paying taxes, while collecting a government subsidy, for the benefit of their shareholders.
 
RECORD-SETTING REITs
 
There are five real estate income trusts (REITs) among the record setters, including residential REIT Minto Apartment, which is controlled by the billionaire Greenberg Family.(1) The five REITs increased their combined profits from $427 million to $1.2 billion, while their combined taxes fell by 80%.
 
BIGGEST GAINS
 
The recently privatized Hydro One had the largest increase in profits, adding $992 million to its bottom-line. Close behind were Couche-Tard, with an extra $914 million, and Power Corp., which added $886 million. Minto was the winner in percentage terms with an 800% increase from $20 million to $180 million.
 
Ten of the companies turned 2019 losses into 2020 gains. The biggest turn-around was Centerra Gold, which went from a $123 million loss to a profit of $545 million.
 
PROFITS AND CASH-HOLDINGS
 
Record profits during a pandemic led 39 of the record-setters to increase their cash-holdings by 58% to $71.9 billion. More than half the increase in cash holdings are attributable to Manulife, Shopify, and Couche-Tard, which added $7.4 billion, $5 billion, and $3.2 billion to their coffers, respectively.
 
 
According to our research, over one-third of the 142 corporations analyzed are enjoying record profits. Some are doing so with public subsidies. In many cases, these record profits are also being achieved after decades-long increases in profit margins.
 
Our governments have taken on record deficits to keep Canadians safe and solvent during the pandemic. We now face the challenges of paying for the past and on-going costs of the pandemic, as well as the on-going climate crisis.
 
It is highly problematic that dozens of Canada’s largest corporations were able to pad their bottom-lines and send more money to shareholders, yet somehow reduce their tax bills, at the same time as governments posted record deficits to keep the economy functioning.
 
How can this situation be remedied? This report shows some obvious places to start.
 
 
POLICY RECOMMENDATIONS
 
To promote a more inclusive recovery, we recommend three measures the federal government should introduce, to ensure that the pandemic’s most profitable firms cover a greater share of the costs. 
 
1. Introduce an excess-profits tax
 
Canada can learn from past experiences in financing international crises, such as WWI and WWII. The federal government introduced an excess-profits tax during these wars of up to 80% on excess profits of Canadian corporations. These taxes often raised more than the general corporate income tax at the time. The Parliamentary Budget Officer found that an exceedingly modest one-time excess profit tax—applied to companies with a higher than normal profit margin in 2020—would bring in $8 billion.(2)
 
Even the IMF is recommending governments consider adding an excess profit tax to their fiscal toolkit as they continue to deal with the financial fallout of the pandemic.(3)
 
National polling by Abacus Data found a large majority of Canadians support the idea of an excess profits tax on corporations to help pay for a bold recovery plan.(4)
 
In times of crisis, fairness requires that larger corporations doing extraordinarily well, while so many others are struggling, contribute more.
 
2. Restore corporate tax rates
 
Over the past 25 years, the effective rate that corporations pay on their taxable income has been cut in half. Decades of corporate tax cuts have eroded government revenues and contributed to wealth inequality with little in return for workers or the economy. Defenders of these cuts promised the benefits would ‘trickle down’ in the form of investment and jobs.
 
However, investment in productive capacity has continued to fall even as corporations benefited from rate cuts.(5)
 
Studies have documented how corporate tax cuts trickle up, rather than down, leading to increased corporate concentration and power, rising cash balances for larger corporations, record share buybacks and dividend payments, as well as sky-rocketing CEO pay.(6) Restoring corporate tax rates would help address worsening inequality and its social harms.
 
U.S. Treasury Secretary Janet Yellen pledged to increase the U.S. federal tax rate from 21% to 28%, well-above Canada’s rate.(7) The Canadian government should seize this opportunity to reverse years of regressive corporate tax cuts and also significantly increase our corporate tax rates.
 
3. Increase transparency and accountability
 
Record profits by large corporations raise questions about how they achieved this feat during a pandemic, as well as questions about who the ultimate beneficiaries are.
When the federal government first announced its CEWS program, Canadians for Tax Fairness called for greater transparency and accountability attached to this spending.(8)
 
CEWS was intended to help workers by providing companies with funding to retain jobs. However, media investigations have identified many companies that collected the subsidy, while enjoying high revenue and profits, and continued to make share buybacks and distribute dividends.(9)
 
It should not require significant investigative work by reporters to uncover how corporations spent public money. To ensure CEWS, and all other government funding for business, goes to supporting workers, not making shareholders richer, the federal government should publish further details on which businesses received federal support.
 
As we recommended early in the pandemic, corporations that received federal aid should be prohibited from engaging in corporate stock buybacks, executive bonuses, golden parachutes, and shareholder dividend payouts for at least one year. Companies that engaged in these activities should return federal funding.
 
The requirement for greater corporate transparency extends beyond public funds and the pandemic. With the latest federal budget, the government pledged to establish a beneficial ownership registry. This is a great first step. However, Canada lags other counties in terms of corporate disclosures.
 
This report was limited by the lack of information on Canadian subsidiaries of multinational corporations. With significant portions of Canada’s economy taking place under corporate management, Canadians deserve greater openness.
 
 
ENDNOTES
1. Dream Industrial, Minto Apartments, Northwest Healthcare, Summit Industrial, WPT Industrial.
 
 
 
APPENDIX : 50 Corporations with Record-Profits
 
2020 $M: Total profits in 2020 (millions, Canadian dollars) // ETR: Effective Tax Rate // CEWS: Whether or not the company received the Canada Emergency Worker Subsidy // THS: Whether or not the company has an identified subsidiary in a tax haven.
 
 
COMPANY
Prov.
$M in 2020
ETR
CEWS
THS
1
Manulife
ON
$5,871
18%
 
Yes
2
TC Energy
AB
$4,616
4%
 
Yes
3
Couche-Tard
QC
$3,650
20%
Yes
Yes
4
CPR
AB
$2,444
24%
 
Yes
5
Power Corp
QC
$2,046
2%
 
Yes
6
Hydro One
ON
$1,788
-78%
 
 
7
Kinross Gold
ON
$1,769
25%
 
Yes
8
E-L Financial
ON
$1,163
15%
 
 
9
Intact Financial
ON
$1,082
20%
 
Yes
10
Kirkland Lake Gold
ON
$1,061
32%
 
 
11
Algonquin Power
ON
$1,022
8%
 
Yes
12
Emera
NS
$983
26%
 
Yes
13
B2Gold
BC
$839
35%
 
Yes
14
Empire Co
NS
$707
27%
 
 
15
Wheaton Precious Metals
BC
$681
0%
 
Yes
16
Agnico Eagle Mines
ON
$674
34%
 
Yes
17
Tourmaline Oil
AB
$618
0%
Yes
Yes
18
Constellation Software
ON
$584
28%
 
Yes
19
Dollarama
QC
$564
26%
 
 
20
Senvest Capital
QC
$554
6%
 
Yes
21
Centerra Gold
ON
$545
2%
 
 
22
Canfor
BC
$544
22%
Yes
 
23
CCL Industries
ON
$530
24%
Yes
Yes
24
Shopify
ON
$419
-35%
 
Yes
25
Northland Power
ON
$361
19%
 
Yes
26
Northwest Healthcare Properties
ON
$314
4%
 
Yes
27
WPT Industrial REIT
ON
$297
-2%
 
Yes
28
Canadian General Investments
ON
$289
0%
 
 
29
Interfor
BC
$280
24%
Yes
 
30
Dundee Precious Metals
ON
$264
9%
 
 
31
Ritchie Bros Auctioneers
BC
$228
28%
 
Yes
32
Labrador Iron Ore Royalty
ON
$227
19%
 
 
33
Equitable Group
ON
$224
26%
 
 
34
Stella-Jones
QC
$210
26%
 
Yes
35
Summit Industrial Income REIT
ON
$207
0%
 
 
36
Dream Industrial REIT
ON
$200
4%
 
Yes
37
Alamos Gold
ON
$188
35%
Yes
Yes
38
Minto Apartment
ON
$180
0%
 
 
39
Guardian Capital Group
ON
$179
11%
 
Yes
40
Leon's
ON
$163
22%
 
Yes
41
AbCellera
BC
$153
25%
 
Yes
42
Canaccord Genuity
BC
$152
26%
 
Yes
43
China Gold International Resources
BC
$146
9%
 
Yes
44
The North West Company
MB
$140
25%
 
Yes
45
Telus International
BC
$138
32%
 
 
46
Torex Gold
ON
$137
40%
 
Yes
47
Goeasy
ON
$137
25%
 
Yes
48
FirstService
ON
$117
25%
 
Yes
49
Enghouse Systems
ON
$103
19%
Yes
 
50
Sunopta
ON
$100
5%
 
Yes
 
 
METHOD
Canadians for Tax Fairness used the S&P Compustat database to identify Canadian corporations with more than C$100 million in profits (Compustat code NIQ) in the 2020 calendar year. This netted 142 companies, which were analyzed historically to compare total profits, going back to 1980. Cash-holdings were compared between fourth quarter figures for 2020 and 2019 from Compustat code CHE, which is ‘cash and cash equivalents.’ The presence of subsidiaries in tax havens was based on the companies’ ‘Annual Information Circular’ and a list of known tax havens. More details on the limits of this method, primarily that it results in under-identification, can be found in C4TF’s report ‘Bay Street and Tax Havens: Curbing Corporate Canada’s Addiction.
 
NOTE
The results for CEWS recipients may be incomplete due to the complex ownership structures of many of the companies on the list. ETR was calculated using Compustat codes TXTQ and PIQ, for income tax and pre-tax income, respectively.
 
 
ABOUT CANADIANS FOR TAX FAIRNESS
Canadians for Tax Fairness is a non-profit, non-partisan organization that advocates for fair and progressive tax policies, aimed at building a strong and sustainable economy, reducing inequalities, and funding quality public services.
 
ABOUT D.T. COCHRANE
D.T. Cochrane has graduate degrees in economics, as well as in social and political thought. He has researched and written about a range of topics including pipeline finance, big tech, and corporate power. Although he grew up on a ranch in Saskatchewan, D.T. currently lives in Peterborough with his partner and children. When he's not figuring out new ways to use pivot tables, he can be found reading fiction, taking photos, and trying to enjoy outdoor activities.