Canada is the 17th most secretive country in the world when it comes to financial transactions, according to an index released today by our partners at the London-based Tax Justice Network.
The Financial Secrecy Index shows that Canada was more secretive than notorious tax haven jurisdictions such as British Virgin Islands ( 20). Russia (25) and Barbados (26).
But how does a country that accounts for only two per cent of the global market in offshore financial services score worse than recognized tax havens?
“Secrecy comes in many flavours,” say the report’s authors.
First, Canada levies an extremely low effective rate of tax on businesses, - the lowest of the G8 countries. Second, it a regulatory haven for the world’s extractive industries. The third, and most important reason is the role Canadian interests have played in the development of tax havens elsewhere, notably in the Caribbean.
They also cite how easy it is to set up anonymous shell companies in Canada. World Bank reports and academic surveys show that Canada and the United States have the world’s most lax regulations for corporate registration.
“That’s one of the big factors in this black eye for Canada,” says Dennis Howlett, Executive Director of Canadians for Tax Fairness. “Shell companies that only exist on paper are virtually untraceable. They are tools of the trade for money launderers, tax evaders and fraudsters. Cayman Islands and Barbados require more information to set up a company or trust than many Canadian provinces.
At last summer’s G8 Summit Canada resisted agreement on stronger rules to identify the ultimate beneficial owners of accounts, trusts and companies as proposed by British Prime Minister David Cameron. Ultimately Canada bowed to public and peer pressure and committed to working with other countries to beef up regulations and close loopholes that cost governments billions in lost tax revenue.
“This report is a timely reminder for Prime Minister Harper and Finance Minister Jim Flaherty of how important it is to follow up on those commitments,” says Howlett. “We have a lot of problems with corporate registration that need to be fixed and every week that goes by costs honest taxpayers a lot of money.”
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