OTTAWA: Canadian corporations and individuals quadrupled the amount of money they transferred into tax havens last year, pouring almost $40 billion into the tropical islands and European duchies that shield funds from Canadian taxes, newly released statistics show.
It was one of the biggest years ever for “investment” in tax havens — more than four times greater than the $9 billion sent offshore in 2014. The total amount of wealth held in the 10 most popular tax havens now sits at $270 billion.
“The problem is bigger than it has ever been,” said Dennis Howlett, executive director of Canadians for Tax Fairness, which took foreign direct investment numbers from Statistics Canada to calculate the use of tax havens.
In 2015, $13 billion went to the Cayman Islands, $9 billion to Barbados, and nearly $8 billion to the Bahamas, according to the statistics. Money sent to Switzerland shot up by 58 per cent over the previous year.
“And you have to remember, this is just the money that’s been declared,” said Howlett.
The recent Panama Papers investigations carried out by the International Consortium of Investigative Journalists and the Star have laid bare the shady world of offshore tax havens. Dozens of reports have detailed how illicit money mingles with cash kept out of the reach of tax collectors in a network of shell companies that hide their owners’ true identities.
Using international estimates, Howlett says there could be an additional $100 billion in Canadian money stashed in undeclared — and thus illegal — offshore bank accounts.
That money has been targeted by the Canada Revenue Agency, which has received a $444-million increase in federal funding over the next five years. The CRA has been instructed to beef up audits of “high risk” tax payers and conduct targeted crackdowns on known tax havens, starting with the Isle of Man.
But Howlett says these efforts will take years to bear fruit and they fail to tackle the money declared in official statistics. Unlike money stashed by individuals in tax havens to illegally evade paying Canadian taxes, declared money is put offshore by corporations seeking to legally reduce their tax bills.
“The upside is that there’s lots of money sitting there offshore that the government could get back and invest in public services,” Howlett said. “But this would require tightening corporate taxes, something the government hasn’t shown that it’s willing to do.”
Canada’s top two destinations for foreign direct investment are the United States and the United Kingdom. But rounding out the top five are three tax havens: Barbados, Luxembourg and the Cayman Islands.
“There might be a few resorts and golf courses (in those countries) but most of this money is not actually invested there,” said Howlett. “It goes through the tax haven and gets reinvested elsewhere. The returns on those investments are reported in places like Barbados, where there are hardly any taxes.”
Howlett says tax treaties exacerbate the problem. Canada has signed tax treaties with 92 countries, nine of which are considered tax havens.
“Tax treaties with tax havens do more harm than good,” said Howlett. “They actually facilitate use of tax havens because they allow the repatriation of profits tax free.”
