How Irving's Bermuda insurance company piled up millions in offshore tax-free profits
Spokesperson calls captive insurance ‘a good business approach’ to cut costs
New Brunswick's billionaire Irving family created an offshore insurance company that allowed them to move millions of dollars in profits out of Canada and into the tax haven of Bermuda, according to leaked documents reviewed by CBC News and Radio-Canada.
The Irving-owned Bermuda insurance company, F.M.A. Ltd., sold insurance premiums to Irving companies in Canada and Bermuda for their marine vessels.
F.M.A. then reinsured major risks to those vessels by paying lower premiums to a non-Irving reinsurance company based in Bermuda.
That allowed F.M.A. to accumulate almost $13.4 million in untaxed income between 1973, when it was incorporated, and 2001, the last year for which CBC News and Radio-Canada have financial statements.
The company's records provide a rare glimpse into a topic that has intrigued New Brunswickers for years: the complex multibillion-dollar financial apparatus — including a $3 billion tax-free trust — that corporate patriarch K.C. Irving created in Bermuda over several decades.
"Under current Bermuda law, the Company is not obligated to pay any taxes in Bermuda on either income or capital gains," says a note that appeared in F.M.A.'s annual financial statements between 1985 and 2001.
F.M.A. was what is known as a "captive insurance" company, an insurer with the same owner as the insured company or assets, allowing that owner to benefit from the insurance profits.
It had no office: its Bermuda address was that of Appleby, an offshore services law firm used by the Irvings. The leaked documents, which come from Appleby, identify no F.M.A. insurance customers other than Irving companies.
Anne McInerney, the J.D. Irving Ltd. vice-president of communications, said in an emailed statement that F.M.A. "has not been active for at least 10 years."
It's an easy way for a Canadian-based multinational to save some Canadian tax.- Geoffrey Loomer
The company turned down an interview request and McInerney did not specify in her email whether a new company was set up to replace F.M.A., but suggested J.D. Irving Ltd. still considers captive insurance to be a useful strategy.
"A captive insurance company was then and continues to be a good business approach to reduce insurance costs and ensure the best possible insurance coverage," she said.
Geoffrey Loomer, a professor of tax law at the University of Victoria Law School in British Columbia, says it's not surprising the Irving family set up a captive insurance firm.
"It's an easy way for a Canadian-based multinational to save some Canadian tax," he said.
"The premiums that they're paying … that's a deductible expense [in Canada], usually. It's income to the Bermuda insurance company. But the tax there is zero."
In 2020, Reuters News reported that several large global oil companies, including Shell, BP and Chevron, used offshore captive insurance firms and banks to lower their tax bills.
The practice is legal.
McInerney said all insurance sales between F.M.A. and J.D. Irving Ltd. companies were at fair market value. Canadian tax authorities wouldn't have allowed them overwise, she said.
Irving 'captive insurance' company revealed in leak
F.M.A. Ltd. is one of several previously unknown Irving companies in Bermuda revealed in documents leaked to German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and CBC and Radio-Canada.
Many of the records in the leak, known as the Paradise Papers, come from Appleby, which was founded in Bermuda.
The Irving family is among Canada's wealthiest.
K.C. Irving's oldest son, J.K. Irving, and his family oversee J.D. Irving Ltd.'s forestry and paper operations, New Brunswick's largest private sector employer.
His fortune has been estimated by Forbes Magazine at between $4.1 billion and $8.3 billion over the last decade.
K.C.'s second son, Arthur, and his family own Irving Oil, which operates Canada's largest oil refinery in Saint John.
Forbes has pegged his wealth at $1.9 billion to $5.5 billion.
A third son, Jack, died in 2010. His family owns Irving companies such as Ocean Steel and Commercial Properties.
Irving companies have benefited from federal and provincial subsidies, taxpayer-funded government contracts and tax concessions over the years.
They range from $304 million in loans to J.D. Irving Ltd.'s Irving Shipbuilding in Halifax to a 25-year cap on property taxes — later repealed — on Canaport LNG, co-owned at the time by Irving Oil.
Offshore holdings and an ode to 'home'
The Irvings portray themselves as fiercely loyal to New Brunswick, driven by a desire to create jobs in, and give back to, their home province.
"We're for New Brunswick. This is home," Jim Irving, J.K.'s oldest son and co-CEO of J.D. Irving Ltd., told a committee of the provincial legislature in September 2021. "We're not absentee owners, sitting in New York or Toronto."
Yet F.M.A.'s captive insurance arrangement is just one example of the Irvings moving their wealth far from home to avoid Canadian taxation.
Irving family members pay "onshore" taxes in Canada such as personal income taxes, and their operations here are subject to property taxes.
But for decades, a large part of their fortune was maintained offshore, including holding companies and the $3 billion trust created by K.C. Irving's will, out of the reach of Canadian tax authorities.
"That's a lot of money that's not in schools, in our hospitals, on our roads, in our common good," said Green Party MLA Kevin Arseneau, who has raised the Irving use of offshore tax havens in the legislature.
"That's a lot of money that was not taxed, that is not in the hands of who it should belong to, which is the people of New Brunswick."
Leak reveals previously unknown Irving companies in Bermuda
Over the years, Statistics Canada's inter-corporate ownership database showed the New Brunswick Irving companies under eight Bermuda holding companies: F.M.O., F.M.R., Forest Mere Investments Ltd., F.M.P., F.M.W., F.M.K., F.M.N. and F.M.I.
F.M.O. was the parent company of Irving Oil, and F.M.P. was the parent of Irving Pulp and Paper.
Two Irving shipping companies, Kent Line International Ltd. and Voyageur Shipping Ltd., were also registered in Bermuda and publicly identified by Statistics Canada.
The Paradise Papers leak reveals five previously unknown companies using the "F.M." naming convention that have never appeared in the federal database: F.M.C., F.M.E., F.M.F., F.M.H. and F.M.A.
"The various 'FM' companies you refer to have not been active in our organization for more than 10 years," McInerney said in her statement. She said the J.D. Irving Ltd. companies "are wholly owned and controlled by Canadians who proudly reside in New Brunswick."
Shipping company's name an anagram
Another newly revealed offshore shell company incorporated in Bermuda by the Irvings is Gainvir Transport, which owned some of the vessels insured by F.M.A.
"Gainvir" is an anagram for "A. Irving."
Court filings in 1989 listed Gainvir's business address at Kent Line's office at 300 Union St. in Saint John, J.D. Irving Ltd.'s head office.
F.M.A. insured vessels owned by J.D. Irving Ltd. and Timberline Shipping, a company described as "affiliated" with Gainvir. F.M.A. also lent Gainvir and Timberline $2.7 million to buy two ships, the Irving Forest and the Irving Timber.
"The interest that they would earn on that loan would be income in Bermuda, which means it's zero corporate tax in Bermuda," Loomer said.
Insurance firm paid no taxes in Bermuda
Because Bermuda's corporate registry doesn't disclose the shareholders of companies registered there, Irving ownership of F.M.A. would have remained a secret if not for the Paradise Papers leak.
A February 1973 letter by Bermuda's deputy controller of foreign exchange says Forest Mere Investments, an Irving holding company incorporated in Bermuda in 1969, was the beneficial owner of shares in F.M.A.
A 1988 letter describes J.D. Irving Ltd. as F.M.A.'s "parent company" and a 1996 document calls Forest Mere its "ultimate parent."
Bermuda does not charge corporate income tax on companies that do not produce or manufacture anything on the island.
F.M.A. often sold premiums for more than what it was spending
Six months after F.M.A. was created, it signed a reinsurance agreement with Insurance Managers Ltd. of Bermuda.
F.M.A. would cover claims below $150,000 from its own accounts but would reinsure potential claims above that amount with a third party.
In 1974 F.M.A. sold $948,920 worth of insurance premiums to Irving companies and paid $430,599 to third-party reinsurance firm Insurance Managers Ltd. That left F.M.A. with $518,321 in "net earned premiums" and $131,258 in net income.
The company continued charging more in premiums than what it was spending on reinsurance, accumulating $13.4 million in cumulative net income as of 2001, the last year for which there are leaked financial statements.
F.M.A. was dissolved in 2014, part of a wave of apparent dissolutions of Bermuda-based Irving companies in the wake of the family's decision to split the conglomerate.
McInerney's statement to CBC and Radio-Canada did not respond to a question about whether the Irving family owns any companies in offshore tax havens now.
An 'artificial' but legal oil trading arrangement
Even before the Appleby leak, Irving's offshore strategy has occasionally come into public view.
In 1978 the federal government tried to tax profits from IrvCal, a company created in Bermuda by Irving and its then-refinery partner Standard Oil to buy foreign crude at a low price and resell it to the Saint John refinery at a higher price.
That lowered the refinery's Canadian profits and its tax bill, while padding IrvCal's accounts in Bermuda with large tax-free profits.
"It makes sense from an economic point of view, from their perspective," Loomer said. "But it obviously deprives the Canadian and U.S. authorities of tax they might have raised otherwise."
From 1971 to 1975, IrvCal made $142 million from the arrangement, of which $137 million went to Irving Oil as tax-free dividends.
In 1991 Justice Patrick Mahoney of the Federal Court of Appeal ruled Irving Oil broke no law.
The IrvCal transactions were "artificial" and "a tax avoidance scheme, pure and simple," he said, but "it is my opinion that the tax avoidance scheme contrived in the present case did not offend the Income Tax Act."
Loomer said this was one of several rulings that prompted Ottawa to tighten tax laws in 1994, making it easier to tax more of what he calls "mobile income."
K.C. Irving fled 'devastating' tax bill in 1971, son confirms
Even K.C. Irving's move to take up residence in Bermuda was recently confirmed as a tax avoidance strategy.
The industrialist left Saint John at the end of 1971, days before a new provincial estate tax came into force, and never explained the move.
"I do not choose to discuss the matter further," he said in a statement at the time.
His son, J.K. Irving, said in 2017 that the tax changes could have imposed a rate of up to 80 per cent on the family companies if K.C. had continued living in Canada.
"This would have been devastating to the businesses as they would have had to have been sold to pay the anticipated death duties and taxes," Irving wrote in a letter to Atlantic Business Magazine, responding to a columnist who accused the family of tax avoidance.
Loomer said the 80 per cent tax figure is a stretch: it was the top income tax rate at the time, but other business tax rates were lower.
"He was looking at a significant tax hit to the family," Loomer said. "Whether it would have destroyed the companies and ended all these jobs is hard to know. It seems like an exaggeration."
Irving companies won't comment on Bermuda holdings
K.C. Irving lived briefly in the Bahamas before settling in Bermuda, where he had incorporated F.M.O. in 1968 and F.M.P. and Forest Mere Investments in 1969.
Others would follow, including F.M.A., incorporated in July 1973.
The provincial estate tax was later abolished but Irving remained a Bermuda resident until his death in 1992.
Though the 2017 letter from his son framed his motive as saving Irving jobs, not the family's personal fortune, it appears to be the first time a family member has confirmed that Irving left for tax reasons.
J.D. Irving Ltd. and Irving Oil turned down requests for interviews with Irving family members about their Bermuda holdings. Jack Irving's son John did not respond to a request.
Irving Oil spokesperson Katherine d'Entremont said in an email statement that "the full ownership structure of Irving Oil is fully taxable in Canada."
And McInerney said that "our companies pay all taxes in Canada."
"All taxes" is a relative term for businesses using offshore tax havens, Loomer said.
"When you say, 'We are paying all the tax that we owe,' yes, that is likely true," he said. "It's just that you are ensuring that that amount is very low."