Loblaw court ruling highlights need to reform laws to prevent international tax dodging

Photo: Stephen Weppler, flickr

Canada’s Federal Court of Appeal has sided with Loblaw  in a lengthy case the Canada Revenue Agency brought against the corporate giant over $368-million in taxes it avoided by shifting its profits to a subsidiary “bank” it established in the tax haven of Barbados.

Canadians for Tax Fairness alerted the media to this judgement and told the National Post, the court ruling reveals fundamental flaws in both Canadian laws and the international corporate tax system. Large corporations with subsidiaries in tax havens or secrecy jurisdictions can avoid paying taxes using complex, but legal accounting schemes.

Our organization has been advocating for stricter rules to prevent companies from using offshore accounting schemes to lower their tax bill in Canada. We have also argued Canada can also play a bigger role in reforming global corporate tax rules such as treating multinational enterprises as single entities for tax purposes so they can’t avoid taxes through subsidiaries and affiliated companies -- or apportioning profits of corporations between countries based on real economic factors, such as sales and employment.

Loblaws has a dominant position in Canada’s retail food and pharmacy sectors and has been involved in anti-competitive practices,  including collusion and overcharging consumers through the bread-price fixing scandal. It is one of a handful of large corporations that will profit under COVID-19 while smaller businesses struggle or shut down completely. Thanks to this court ruling, the company’s shareholders and owners --including the wealthy Weston family-- will be hundreds of millions richer while the Government of Canada will lose revenues at a time when it is spending billions in aid to bail out the economy.

The case not only highlights the need for Canada to improve tax laws, but to apply stricter conditions to the companies it is bailing out.

Countries such as France, Denmark and Poland are restricting aid to corporations that use tax havens to avoid paying taxes. As we recently argued, Canada should take measures to ensure any public funding goes to businesses that actually need the help, not to pad the profits of tax-dodging corporations and their wealthy owners.