Canada, OECD countries inch toward closing tax loopholes for the rich
Efforts begin to tighten banking rules that cost governments and taxpayers billions every year
It's hard to think of three words that more effectively imply a combination of wealth, worldliness and underhanded financial dealings than "Swiss bank account."
Just saying them out loud has, for decades, evoked images of massive fortunes safely tucked away in the mountains, behind a wall of well-dressed bankers who will politely refuse, in three languages, to answer any questions posed by your local taxman.
But those days may be ending, and that could mean a lighter burden for taxpayers in Canada.
- KPMG offshore 'sham' deceived tax authorities, CRA alleges
- Switzerland sentences tax evasion whistleblower to 5 years
- Private bank in Switzerland used by several Canadian billionaires
This year the governments of Canada and Switzerland moved closer to a deal to use the Common Reporting Standard (CRS) — an agreement that could see Switzerland's famously secretive bankers share more information with the Canada Revenue Agency, making it harder for the wealthy to hide money overseas.
The move has been described as a step toward ensuring fair payment of taxes.
Up until now, rich individuals have had nothing to fear.- Dennis Howlett, Canadians for Tax Fairness
"It means it's much easier for the CRA to say, 'Here's a list of Canadians. Let's check out what they put on their tax returns,'" says Dennis Howlett, executive director of the group Canadians for Tax Fairness (CTF).
"And if they're not reporting an account in Switzerland, [CRA will] ask them a few questions."
But it's also just one part of a much larger, co-ordinated effort by many countries to collect what they are owed.
The dozens of countries in the Organization for Economic Co-operation and Development (OECD) have, since 2013, been working to close "gaps and mismatches" in their tax rules that allow large companies and very rich individuals to avoid paying their share.
If you rob Peter to pay Paul, Paul does not complain.- Vern Krishna, University of Ottawa
The OECD's project is named for what it hopes to stop — Base Erosion and Profit Shifting (BEPS) — and presented a 15-point action plan to the G20 leaders last year.
The developing deal between Canada and Switzerland was preceded by another agreement, signed in January, among 31 countries to more freely exchange tax-relevant information about large companies. Other notable tax havens including Liechtenstein and Luxembourg also signed the OECD/BEPS agreement on country-by-country reporting. Many others — Hong Kong, Monaco, et al — did not.
The missing revenue from corporate income tax adds up to between $100 billion and $240 billion US per year, according to estimates deemed "conservative" by the OECD.
In Canada, the use of overseas tax havens alone costs Ottawa an estimated $7.8 billion, according to Howlett and the CTF.
Recovering some of that revenue means lightening the load for others of more modest means.
"Up until now, rich individuals have had nothing to fear," Howlett says, because hiding money was relatively easy, and the consequences for tax evasion in Canada are relatively light.
"Now, this may give them some pause."
Long way to go
But if you happen to be one of those rich individuals, you probably don't need to call your banker in Bern this very minute.
The Canada/Switzerland agreement isn't expected to see any information exchanged until 2018 — assuming the necessary legislation is passed — and some experts doubt that it, or the OECD's broader efforts, will amount to much.
The member countries still have a long way to go before they are in agreement, and even longer before they enact the necessary laws, according to Vern Krishna, who teaches tax law at the University of Ottawa.
- Swiss banks fined for helping U.S. citizens evade taxes
- Walmart's use of tax havens revealed in new report
- Swiss, Australians to share tax information
"Getting an agreement, all of them coming together, is going to be very, very difficult," he says.
The laws "must be enacted by every country and each country has different interests," he says. "Do you think each one will implement the exact same language, to the exact same effect?"
And that's assuming a country is even inclined to change its laws.
Whack a Mole
Ireland, for example, attracts a lot of companies with its low corporate taxes. It's a popular spot for technology, pharmaceutical and other companies with valuable intellectual properties — like Google, which has recently taken fire from critics for allegedly transferring an inordinate amount of money through its Irish operations.
The U.S., as Google's home territory, might want its fair share of tax from the search giant. But is Ireland going to sacrifice its interests for the sake of the IRS?
"If you rob Peter to pay Paul, Paul does not complain," Krishna notes dryly.
- Why tax cheats in Canada are rarely jailed
- Harper government partnered with industry group battling CRA over KPMG case
And even if the Irish did, for some reason, take one for the global economic team, there are plenty of other co-operative, low-tax jurisdictions with stable governments that would be happy to step in. And the weather is much nicer in the Cayman Islands.
One expert likened the situation to a seemingly unwinnable game of Whack a Mole, in that wealthy people and companies will always be well advised about where and how to move their money.
"The solution is not as simple as it's sometimes put forward," Krishna says.
Howlett, like others, describes the OECD's efforts, like the developing co-operation between Canada and Switzerland, as a worthwhile first step. But he says it will take the UN to make a more meaningful difference with the world's tax rules.
That way, he says, a more comprehensive set of rules could be put in place that will cover all the world's countries, not just those in the OECD. That, he says, will make a positive difference for everyone.
- An earlier version of this story said BEPS stands for Base Erosion and Profit Sharing. In fact, it stands for Base Erosion and Profit Shifting.Mar 09, 2016 7:32 PM ET