As Canadians dutifully file personal income tax returns during the coming weeks, consider this: many profitable companies pay little or no tax.
In an interview this week on The Sunday Edition, Dennis Howlett, executive director of Canadians for Tax Fairness, says these multinational corporations set up subsidiaries in tax havens such as Ireland, Switzerland and the Cayman Islands and devise ways to transfer profits there from Canada. There are no laws to prevent this.
Also on The Sunday Edition this week
Hour two special - Our Longest War: As Canada's mission to Afghanistan ends, we take stock: what was won, what was lost? Guests include:
- Dr. Sima Samar on the situation now in Afghan villages and cities
- Former ambassador Chris Alexander on the successes and failures of the mission
- Retired Canadian Major General Lewis MacKenzie on what to do with an army of 68,000 troops
Life Lines: Poetry that inspires the president of Calgary's Glenbow Museum.
The Covenants of the Prophet: Quebec-born Metis academic John Andrew Morrow on the founder of Islam's promise to grant protection to all Christians.
The Chain Across the Door: The fight to bring traditional Chinese medicine into the medical mainstream.
"There's been a proliferation of tax havens," Howlett explains to host Michael Enright. "Now, a quarter of all direct Canadian foreign investment going abroad is going to tax haven countries. That's about $170 billion sitting in tax havens, so it's become a huge problem."
- Tax havens explained: How the rich hide money
- How Canada's banks help move money in and out of tax havens
An additional concern for Howlett's organization is Canada's low corporate tax rate, which the Conservative government established with no guarantee or requirement from corporations that they spend it on job creation or other benefits to the country.
Currently, the rate is about 25 or 26 per cent, depending on the province. It's so low that Howlett has actually heard complaints from the U.S.
"I was in Washington a year or so ago when I met with some of the congressional staff there, who were complaining about Canada becoming a tax haven," he says, "because our corporate tax rates are now 10 points below the U.S."
Culture of 'secrecy'
He reveals that according to Bloomberg LP, few multinationals even pay that low rate. Of the TSX 60 – the top 60 companies trading on the Toronto Stock Exchange – only four paid 25 per cent tax or more between 2007 and 2011.
Thirteen per cent of these corporations paid less than 5 per cent in taxes and more than half paid less than 10 per cent. Much of this tax evasion is done secretly.
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"The secrecy allows people to open shell companies or trust accounts where they don't have to identify who the ultimate beneficial owner is," Howlett explains. "So an account can be opened up in the name of a local lawyer or some other person who acts as an intermediary. That way they can hide the fact that they've got money sitting in an account and it's very hard for the Canadian Revenue Agency to figure out who's got money hiding in Barbados or Cayman Islands or wherever it is."
He adds that severe cuts at Revenue Canada – more than 3,000 public servants, more than any other government department – have hampered the government's ability to investigate cases of corporate tax avoidance: "The problem is unless there is some credible threat of being caught, more and more people get into this tax-haven, tax-avoidance scheme."
He says the situation has become so serious that some corporations are trying to "put the brakes on" tax cuts, as they witness the effects on critical areas of the Canadian economy, such as education, health care and infrastructure.
Global efforts are underway for reform. The G8 and G20 summits asked the Organisation for Economic Co-operation and Development (OECD) to devise a new international corporate tax system.
"Ultimately, I think we need a unitary taxation system where multinational corporations have to report their global profits, and the profits should be taxed where the economic activities occur and the value is created," Howlett says. "If the corporations aren't paying their fair share, ordinary taxpayers are shouldering more of the tax responsibility."