Report: Bay Street and Tax Havens

Bay Street and Tax Havens: Curbing Corporate Canada’s Addiction

November 2017

This report explores the extent of corporate Canada’s involvement in known tax havens and provides clear recommendations for a strong government response. It looks at the 60 largest companies listed on the Toronto Stock Exchange. Only 4 of the 60 companies listed no subsidiaries in known tax havens.

Companies often argue that their investments in those jurisdictions are legitimate businesses and not brass plate subsidiaries, but the evidence suggest otherwise. Statistics Canada data on activity for majority owned affiliates abroad tells us that many of these companies have very few employees. In Bermuda, for example, those afiliates reported $31 Billion in Canadian assets but only 35 employees. 

This is no small concern, dollars parked in offshore accounts means lower corporate tax revenues, and thus individual Canadians have to pay higher taxes. Canadian foreign direct investment (FDI) in tax havens reached $284 billion in 2016resulting in estimated losses for Canadian governments due to tax haven use are between $10 and $15 Billion.

The companies are not necessarily doing anything illegal, and that is the problem. ,The report identifies the need for corporate tax law reform that makes it illegal to use a tax haven for tax avoidance and lays out a clear set of actions that need to be taken to curb Corporate Canada’s tax haven habit including: implementing the economic substance test for offshore subsidiaries, capping interest payments to offshore subsidiaries and re-negotiating Canada’s tax treaties with tax havens to ensure that there is a floor for taxes paid.