Panama Papers and Canadian Tax Dodgers
Dennis Howlett, Executive Director of Canadians for Tax Fairness, explains how Canadians have a long history of offshore tax evasion
SHAGHAYEGH TAJVIDI: Welcome to The Real News Network. I’m Shaghayegh Tajvidi in Toronto. As revelations from the Panama Papers continue to implicate the rich and the powerful from across the globe, they’ve included at least 400 Canadians whose names remain largely unknown and most significantly a major financial institution, the Royal Bank of Canada. Data shows that under the Harper conservatives, the amount of wealth stashed offshore reached a record 200 billion dollars just last year alone. This has caused federal and provincial governments billions of dollars in tax revenue losses. Now joining me to look more closely at the Canadian tie-in to the Panama Papers is Dennis Howlett. Dennis is the executive director of Canadians for Tax Fairness and he joins me today from Ottawa. Thank you for joining me.
DENNIS HOWLETT: Thank you for having me.
TAJVIDI: Dennis, what we are not seeing as much in the dominant conversation at the moment is actually how instrumental Canadians have been in getting the tax havens set up and running decades ago. Could you begin by speaking a little bit to that history?
HOWLETT: Well, Canada actually has a very long history of its relation with tax havens. In fact, Canadians were some of the pioneers of tax havens in the Caribbean. The Irving family were one of the earliest business families to use tax havens to shelter their income and many of the Canadian banks played a key role in setting up offshore tax havens in the Caribbean. So there’s been a long history in Canada and it has been allowed to go on and in the recent conservative government turned a blind eye to companies who are abusing tax havens because they thought all this was important to enable them to compete more effectively, but in fact, it created a situation of unfair competition. So for example, Starbucks, all their real estate in Canada is owned by offshore subsidiary so the rents, the payments that the Starbucks stores make goes offshore. It’s a way to shift profits offshore and enables them to pay much less in taxes so really, even though it was justified by the previous government as a way to help businesses compete, in fact, they were undermining Canadian businesses, medium and smaller businesses that don’t have the same kinds of ability to shift profits overseas like the big corporations do. So it’s totally unfair and in terms of being globally competitive it’s probably more important for business to have high-quality, well-educated workers, a quality education system, good infrastructure, good healthcare system, a good legal system to protect their interests. These are way more important than a point or two on the corporate tax rate. In fact, when the New Brunswick government was talking about reducing the corporate tax rate further there, the Business Council of New Brunswick said, “No don’t do that. It’s more important to us to have governments put the money into education and healthcare and infrastructure in terms of our being able to compete than another point or two on taxes.”
TAJVIDI: To get into the figures for a minute, we’ve been seeing varying estimates of how much provincial and federal governments are losing to offshore tax havens. Your organization, Canadians for Tax Fairness estimated somewhere around 7.8 billion which, you said, is a conservative estimate. Others have gone as high as twenty billion dollars annually in losses. So where on this scale are we?
HOWLETT: Well, it’s difficult to estimate exactly how much Canada is losing because of tax haven-related tax evasion, but by triangulating several sources of information available to us, we came up with the estimate of 7.8 billion dollars. That is probably a low estimate but it’s also probably more than Canada can recover on its own efforts so we are hoping that through increased enforcement by changing laws, Canada should be able to get much closer to that figure.
TAJVIDI: So how does our tax system allow for the rich to continue to abuse the tax system through offshore activity and what is one area of policy that could have dramatically benefited from that lost revenue?
HOWLETT: Well, one of the problems with our tax system is that those who have most to lose or to gain are the very wealthy and so they are the ones who shaped our tax policies but really it’s ordinary people that are losing out big-time because it means that the governments are not collecting the revenues they should be collecting and as a result they claim they don’t have enough money to eradicate child poverty or to tackle the problem of climate change or even invest adequately in quality education or health care. So tax haven and tax abuse is a huge problem for everyone and whatever the issue you’re concerned about whether it’s the environment or poverty or Aboriginal rights. All of those things are directly impacted by whether or not the government has revenue needed to address those problems
TAJVIDI: What would be one policy area that you would point to in particular?
HOWLETT: In the recent federal budget, there was an additional four billion dollars for the child benefit which should go a long ways to erasing child poverty. However, the government made these expenditures by going into deficit but they’re not going to be sustainable enough in the long-term unless they find the revenue needed to be able to both improve on these investments and make them sustainable over the long-term. Now much of the tax haven-related activity by individuals I would say 90% of that is illegal but a lot of what corporations do using tax haven subsidiaries is legal, but it shouldn’t be. A lot of it is ways to shift profits. So we need to tighten up on the rules that allow companies to shift profits, we need to make sure that companies pay taxes to governments on the basis of where they’re making their profits, where they have their staff, and where their capital investments are.
TAJVIDI: Okay, Dennis, we’re going to pause the conversation here for a minute and be right back to continue discussing Canadian tax dodgers on the Real News Network. Stay with us.
TAJVIDI: Welcome to The Real News Network. I’m Shaghayegh Tajvidi in Toronto. We’re continuing our discussion with Dennis Howell of Canadians for Tax Fairness. Welcome back. I’d like to pick up with the Royal Bank of Canada being named in these documents from (inaud.) which is the Panamanian Law Firm at the core of this unprecedented leak. Now RBC is defending its practices as fully within the law but what has stood out to you about Canada’s biggest bank being implicated because it’s certainly not the only one with offshore dealings.
HOWLETT: Well, there were two interesting, in addition to the 400 or more names of Canadians that were exposed. The other Canadian connection on the Panama Papers was the RBC and the fact that the Panamanian Law Firm was advising their customers that Canada is a good place to set up shell companies as well because there is very lax enforcement in some provinces when it comes to setting up and registering companies that don’t bother to check who the ultimate real owner is of a company and don’t keep their records up-to-date.
RECORDING: There are very legitimate reasons for global businesses to set up holding company structures in a number of markets. I can tell you that we have a very strong procedures and policies in place to identify wrongdoing.
HOWLETT: In terms of the RBC, it was found that they were involved in helping plant setup 378 offshore shell companies. My understanding is that they’ve actually pulled back from doing this under their new leadership, they’ve realized that this is a risky business. CIBC, another Canadian bank that had a significant offshore engagement, they actually were getting nervous about all these offshore accounts and they sent a letter to all their offshore customers that had accounts in their offshore subsidiaries to, asking them to send evidence that they have reported their offshore accounts in their annual income tax return. And as a result, they ended up cutting off a third of their customers. A lot of, even in the Canadian banks, they haven’t stopped it altogether but they have clearly cut back on their offshore involvement because there are so many risks involved and the more leaks that happen, the more they are exposed and their reputation is also threatened by that.
TAJVIDI: You wrote an article just this past February called “Who’s got guts enough to go after Canada’s tax dodging corporations,” and you mentioned that federal politicians have known about tax havens as long as they have been operational, in essence, except they haven’t had the nerve to crack down. So with all that in mind, what do you make so far of Justin Trudeau’s response to the Panama Papers and what needs to happen moving forward.
HOWLETT: Well, the government in the last federal budget took a good first step in giving additional resources to Canada Revenue Agency to give it the capacity to really investigate these complicated cases. That’s great. They also need to reform Canada’s corporate tax laws to make it more difficult for companies to shift their profits offshore and they also need to deal with the problem of beneficial ownership. We need public registries of beneficial owners of all the companies that are registered federal or provincially. I know that in the past the previous government took the excuse that they didn’t want to tell provinces what to do but provinces are losing revenue big time because of tax havens as well, so it’s in their own interest to bring their regulation of corporate registries up to international standards and not have Canada continue to be one of the worst performers on that. The one other thing would be to do a tax gap study. We don’t really know for sure how big the problem is, how much revenue is Canada losing. The parliamentary budget office has started doing what’s called a tax gap study. Half of the other (inaud.) countries do this. It’s a way to figure out where are we losing most money, where is the best place to put the resources and a way to evaluate your success.
TAJVIDI: Well, new revelations are expected to break this week and we will be watching them very closely. Thank you, Dennis, for being on the program.
HOWLETT: Thank you for having me on your show.
TAJVIDI: And thank you for joining us on The Real News Network.
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