Offshore tax havens are a problem in every country, illuminated most notably by the Panama Papers. Canada is no exception.
Many indicators show Canada lagging behind many first world countries when it comes to cracking down on corporations and people who use offshore tax havens to ultimately pay less taxes in Canada.
With Covid-19 lockdowns, and massive shocks to economies around the world, many governments will have to find new ways of raising revenue or be forced to carry large deficits.
We explored this topic in detail in a recent article about Canada’s Corona debt.
Now, it would seem that recovering taxes lost to offshore accounts should be a low-hanging, easy option to satisfy demand for new sources of revenue. But this isn’t necessarily true.
We’ll look at these accounts, the numbers, and a look at the future.
What are tax havens, and how much are we losing?
Broadly speaking, offshore tax havens are used primarily by corporations and wealthy individuals to reduce the amount of Canadian income appearing on their domestic tax forms, thereby reducing the amount of taxes they have to pay in Canada.
Money is either held in foreign shell companies and sheltered from domestic tax agencies, or money is sent overseas to undisclosed beneficiaries, to be claimed as a loss on domestic taxes, thereby reducing the amount owed.
It is difficult to ascertain accurate estimates of how much money is funnelled through these channels–part of the reason why it takes a concerted effort to bring these entities to court–but the CRA claims $4.4 billion of tax revenue is lost through these schemes.
To put this in the context of general tax avoidance, in 2014 it was estimated that all of Canada’s tax dodging amounted to $14.6 billion. So, a significant amount of Canada’s lost revenue is because of these tax havens.
What has the rest of the world done?
With regards to improving the transparency of these accounts, Canada is tied for last in the G20.
Many countries have instituted polices that require the “disclosure of the real beneficial owners of corporate entities in its overseas territories“. This includes the UK, and the entirety of the European Union, requiring a public beneficiary ownership registry.
It is no wonder, then, that a solution people have named for this problem lies in adopting a similar policy.
Advocates claim that bringing a public beneficiary ownership registry into effect for Canadian companies, and the jurisdictions where they have a presence, would bring more accountability to the flow of funds, and also mitigate money laundering opportunities.
In these pressing times when the public is calling for more transparency from the government, both with how it makes its decisions and how our debt is going to be paid, corporate transparency with regards to foreign tax shelters fits right in to the ongoing dialogue.
Another possible solution is beefing up the CRA itself.
Empowering the CRA
There are concerns that, due to the technical and complex nature of taxes in Canada (we have one of the more complex tax systems in the world), and that many of these tax havens operate in legal grey areas, we need to take a fundamentally fresh look at our corporate tax structure to address these issues.
All of these issues are compounded by the length and complexity of corporate legal cases, which are often drawn out for years. This places further stress on the CRA’s resources, and is a possible explanation for why no definitive action has come down on those Canadian entities using these offshore tax havens.
For more information about what the government is doing, their site here describes the measures taken to reduce offshore tax evasion.
The future of these offshore accounts
In spite of everything, there is a silver lining: Canadian companies do pay more of their share of taxes than in many other G7 countries.
But, this also highlights the need for all countries to work together to reduce the opportunity for corporations, and people, to take unfair advantage of overseas tax havens and loopholes.
The government has made some motions to rectify these issues, but many claim there is still a lot more work to do.
And, as in any matter involving adversaries with plenty of resources to pay for extensive litigation, federal actions must be strong and deliberate.
As our country begins opening up and recovering from Covid-19, more light will be shone on otherwise forgotten corners of our economy.
If Canadians are losing jobs, and the government is looking for revenue to pay off our Corona debt, tax haven accountability is sure to come up in conversations across this country.