When you’re waiting at the corner stop for a bus that never shows up, ruining your car’s suspension by hitting potholes, or waiting hours upon hours in the emergency room, it’s because of tax havens.
But what do tax havens have to do with public services or infrastructure? The reality is that far too many large corporations or wealthy individuals take advantage of weaknesses found within the tax systems of certain jurisdictions in order to hide away their profits without paying a cent in taxes. In other words, tax havens make tax evasion and tax avoidance strategies possible.
You may not know it, but these practices are costing you: our governments are missing out on billions of dollars in tax revenue every year. And when the government can’t find enough revenue, austerity measures come knocking on your door — everyone else ends up paying the price! New Democrats believe we need to put an end to these types of schemes.
Which countries are labeled as tax havens?
According to the Tax Justice Network, there are currently 92 tax havens in the world. These jurisdictions are classified as such based on four main characteristics:
- Taxes are non-existent or are close to 0%;
- Banking secrecy is placed above domestic laws;
- The tax system isn’t transparent;
- There is a lack of efficient exchanges of tax information with other countries.
Who takes advantage of tax havens?
It’s estimated that just in 2015, Canada’s wealthiest individuals and corporations hid no less than 272 billion dollars in tax havens! That’s an incredible sum. What’s worse, this number keeps on growing every year.
But who is capable of sending all of this money offshore?
- Large corporations, who can pay accountants big sums to put together tax avoidance schemes and to boost profits;
- Organized crime, which uses the bank secrecy found in offshore tax havens to launder money from drug trafficking, arms dealing or even prostitution;
- Online companies, like Facebook, Twitter, LinkedIn, Airbnb and others who simply offer services rather than real goods. Because of their very nature, these companies have total freedom in choosing their jurisdiction for tax purposes. The majority of them choose places that heavily reduce their tax burdens — in fact, it’s become the norm for this ever-growing industry. Take for example Netflix, which pays no taxes in Canada, leaving us 100 million dollars poorer.
One thing is certain: taking advantage of these types of schemes is off the table for people like you and I.
How do large corporations and wealthy individuals take advantage of offshore tax havens?
There are several ways to use tax havens to avoid paying taxes — and some of them are even legal! Put simply, these schemes work to transfer taxable revenue to offshore tax havens.
In order to do so, wealthy individuals will mainly take advantage of the banking secrecy: their wealth is sent over to offshore tax havens that guarantee the highest level of confidentiality.
As for corporations, they have other ways to reduce their tax burden. They usually take advantage of the features offered by tax havens and the tax treaties Canada signs with them.
Take for example Bombardier, who — thanks to a complex and convoluted mechanism for transferring funds from their subsidiary in Luxembourg to their American subsidiary in Delaware — managed to reduce their tax bill here in Canada. And it was all legal! See the complete story by clicking here.
So who are the big losers when it comes to offshore tax havens?
That’s easy: you.
Because of the schemes used by large corporations and wealthy individuals, the Canadian government loses out on up to 8 billion dollars a year in public revenue. This money could repair 6.5 million potholes a year, buy 400 AZUR metro cars, or pay for 2,700 years worth of free university education in Quebec. Imagine all the problems we could solve with an extra 8 billion dollars a year!
This loss in revenue is one of the main reasons inequality has been rising in our society. Seeing as multinationals and wealthy individuals keep finding ways to avoid paying taxes, the middle class ends up footing the largest part of the tax bill to compensate for the loss in public revenue. Due to the choices of the few, the whole population ends up being impacted by drastic austerity measures and generalized cuts to public services.
In other words, the wealthy get richer and richer on the backs of the middle class! It’s high time we changed things.
What is the government doing in the fight against tax havens?
It’s fair to say that in the last few years, Canada has become increasingly committed to fighting tax havens. It could, however, be doing a lot more.
The good news: the Trudeau government has invested 440 million $ in the Canada Revenue Agency to better monitor and fight tax fraud. This investment was badly needed, as its predecessor had slashed funds allocated to the agency. Other actions, like a voluntary disclosure program and the sharing of information between the federal government and the provinces has also been put into place.
The bad news: several concrete actions still need to happen. Last March, the federal government voted in favour of the NDP’s motion calling on the government to take real action against tax havens, but we’re still waiting for their plan.
On top of standing still on this issue, the government has actually continued to sign tax information sharing agreements with tax havens, which effectively allows wealthy individuals and large corporations to bring their money back into the country without paying any tax! They’ve given them the green light to continue their scheming.
In the last few months, we have worked with many experts and citizen groups to find concrete solutions for this injustice.
Here are three actions the government can take to put an end to this serious issue.
1. Renegotiate the tax treaties and tax information sharing agreements Canada has signed with tax havens.
Since the 1980s, the wealthiest members of our society have developed several schemes with tax havens in order to avoid paying their taxes. Today, the government loses out on close to 8 billion dollars a year in revenue because of these scams. These losses are costing us dearly.
Despite the global outrage against tax havens, neoliberal policies have amplified the problem. In 2015, Canadians hid away close to 187 billion dollars in West Indian tax havens — that’s 34 billion dollars more than the year before. And this number continues to grow thanks to the tax treaties developed by the Conservatives and signed by the Liberals with known tax havens. In fact, the most recent one was signed with the Cook Islands by Justin Trudeau.
The wealthy are capable of hiding their fortune away in tax havens because we allow them to! By signing tax treaties, they’ve made legal what was once illegal. New Democrats refuse to stand idly by in the face of this injustice.
That’s why we’re calling on the Canadian government to renegotiate these tax treaties and tax information sharing agreements with tax havens. All it would take is a simple amendment to the Income Tax Act to keep society’s wealthiest from skipping out on their tax bill.
2. Put an end to penalty-free amnesty agreements for individuals guilty of tax evasion.
Do you feel like there are two sets of rules in Canada: one for the wealthy and one for regular folks? In fact, when it comes to the Canada Revenue Agency, you’d be right on the mark…
The federal government loses out on close to 8 billion dollars a year in revenue because of the money stashed away in offshore tax havens by the wealthy and large multinationals. However, when they get caught with their hand in the cookie jar, they can take advantage of amnesty agreements offered by the Canada Revenue Agency with its Voluntary Disclosures Program, which allows them to reimburse what they owe — without penalty or interest!
For example, when KPMG’s rich clients got caught hiding away more than 130 million dollars in the Isle of Man, a renowned tax haven, thanks to an elaborate scheme put into place by the accounting firm, they were offered penalty-free amnesty agreements. With the Voluntary Disclosures Program, these multimillionaires received no penalties, nor were they accused of their crimes.
Unlike these rich fraudsters, the average taxpayer doesn’t have access to these special privileges. If you produce your income tax return late, regardless of the reason, you’ll have to pay penalties and interest fees! The Canada Revenue Agency is sending a clear message to the people: if you’re wealthy, you’ll get a second chance. But if you’re not, get ready to pay up.
Does all of this seem fair to you?
These special privileges need to end. These fraudsters need to be paying penalties when they get caught. Even the United States imposes penalties of up to 30% when the wealthy stash away their money in tax havens!
3. Prevent multinational corporations from using false expenses to take advantage of tax deductions
Did you know that multinationals pay very little tax, and that citizens are practically the only ones who bear the cost of our infrastructures and public programs?
Over the years, multinationals have developed various schemes to reduce their tax burden. For example, between 1988 and 2014, investments in Barbados by wealthy Canadians and Canadian multinationals increased from $0.6 billion to $71.2 billion. Barbados is now Canada’s third largest financial partner. That’s rather odd, given that the country has a population of only 300,000.
How is it that Canadian multinationals are investing more money in Barbados than in China? It’s simple: Canada has a very good tax treaty with Barbados. The tax rate for a Canadian multinational investing in Barbados is only 2%. All it has to do is create a false expense to justify its investment. For example, this could be the right to use the patent for one of its pharmaceutical drugs, which belongs to its subsidiary in Barbados.
When tax time comes, the corporation has nothing to report to the tax office because all its income has been invested in Barbados. This sleight of hand keeps getting better; the corporation does not have to pay any taxes when it brings its money back into Canada, because it already “paid” taxes in Barbados!
Does that seem fair to you?
Multinationals should pay their fair share. That is why the NDP has introduced a bill to prevent them from using false expenses to take advantage of tax deductions. If Bill C-362 is passed by the House of Commons, multinationals will have to prove that their expenses are real in order to claim a tax deduction.