There is a powerful Bahamian connection in the mess that is Canada's offshore tax haven epidemic. Now a new leak to the International Consortium of Investigative Journalists and media reports are blowing its cover.
The Toronto Star and the CBC report that three of Canada's top banks have enabled the formation of nearly 2,000 offshore companies and private foundations in the Bahamas. Analysts are quick to point out that not every transaction with a tax haven breaks the law. But tax fairness watchdogs have long warned that Canada has a series of tax treaties with some of the most secretive jurisdictions in the world.
"It just doesn’t make sense,” Richard Leblanc, a leading corporate governance expert and professor at Harvard and York universities told the Toronto Star. “Why are there so many companies registered and such a high volume in a jurisdiction that doesn’t have the population base or the economy to support it? That’s a legitimate question.”
Canadians for Tax Fairness Executive Director Dennis Howlett agrees: "Bahamas is the #4 tax haven for Canadian money, and is a much bigger player for Canada than Panama where the last big tax haven leak originated. Statistics Canada figures show an estimated $32.9 Billion was recorded as being 'invested' in Bahamas at the end of 2015. This figure just includes officially reported investments and doesn't capture all the money being sent there illegally by private individuals. It is a problem that grows bigger every year."
Canadian money in offshore tax havens reached an all-time high in 2015 - a record breaking $270Billion. It is estimated that Canada loses at least $7.8Billion in revenues every year because of tax haven facilitated tax dodging.
Howlett says that Canada should be working with global partners to end tax haven secrecy and reform international corporate tax laws. The new Liberal government has taken steps to tackle wealthy individuals' use of tax havens to evade taxes but has not done much yet to curb corporate tax haven abuse.
There is also a problem with bilateral tax information exchange agreements with tax haven countries. They do more harm than good as they do not really help expose tax cheats but they allow companies to shift profits to tax haven subsidaries and then bring the money back to Canda tax free because "applicable taxes" are deemed to have been paid, even if it means no taxes were payed at all. These agreements with tax havens need to be renegotiated or terminated."
We also need Canada to take strong action against the "facilitators" of tax evasion and agressive tax avoidance, including Canadian banks, accounting and wealth management companies. There are very few legitimate reasons for setting up an offshore company, foundation or trust in a secrecy jurisdiction like the Bahamas. Why are the Canadian banks helping their clients do this unless they have something to hide? The British government has legislated a duty on lawyers and accountants to report suspected avoidance and evasion. Canada should adopt a similar law.