Donald Trump’s contention that it is “smart” not to pay your fair share of taxes has provoked public outrage. But many Canadian multinationals incorporate that mantra into their business plans.
And next week one of them is going to Tax Court.
Cameco, a giant resource company based in Saskatoon is being charged by the Canada Revenue Agency with evading at least $2.2 billion in taxes over the past decade. The CRA alleges that Cameco set up a subsidiary in Switzerland expressly to reduce its taxable income. The CRA also charges that the uranium producer engages in transfer pricing – essentially a shell game of one part of the company invoicing another to reduce taxable income in Canada.
The CRA investigation has been going on for years and it has been a long road to bring it to trial. Cameco is also under investigation by the US’s Internal Revenue Service for the same practices.
“This is an incredibly important and precedent-setting case for Canadians,” says Dennis Howlett, executive director of Canadians for Tax Fairness. “Shifting profits offshore hurts our economy and damages faith in our tax system. We’re hoping this is the start of a sea-change.”
Multinationals engaging in this practice gamble that the complexity and expense of the investigation means that the risk of getting caught is low, says Howlett. Last year’s federal budget earmarked an additional $444million over five years to the CRA’s budget. Observers hope that it will turn up the heat on tax-dodging corporations.
But Howlett says the government also has to be more strategic in setting down ground rules. “The Canadian government needs to reform corporate tax rules and stem the revenue losses due to corporate profit shifting,” he says in a brief to the Parliamentary Finance Committee.. “Requiring economic substance for any offshore subsidiary to be recognized as a separate corporate entity for tax purposes would be a good start. Bill C-621, introduced in the last parliament provides a good legislative example of how this could be done. This one measure could raise $400 million a year and make the rules clearer.”
Earlier this year Canadians for Tax Fairness teamed up with its Saskatchewan counterpart, Saskatchwean Citizens for Tax Fairness and the international corporate watchdog, SumOfUs, and delivered a 35,000-name petition to the Prime Minister’s office and to the Cameco executive offices.
“Cameco has a corporate responsibility to pay the $2.2 billion,” says Don Kossick, the creator of the petition and a C4TF Board Member. “They use Canadian-developed technology to dig Canadian uranium out of the Canadian ground and rely on the Canadian transportation system to bring their product to market. Cameco employs Canadian workers who developed their knowledge and skills in Canadian schools, rely on Canadian hospitals if / when they get sick and rely on the stability and legal protection that Canadian democracy provides. Canadians are exasperated with this shell game.”
Kossick worries that there is still a chance that Cameco will settle out of court and Canadians will never hear the real story. He also lays some of the blame on provincial policies.
“Premier Brad Wall has said nothing to protect the interests of Saskatchewan people. The monies owed by Cameco could easily covered the deficit that has now resulted in major cuts to health, education and human services in Saskatchewan.”
The trial is due to start October 5 in Toronto. A decision isn’t expected until mid-2017.