BUSINESS

Canada Losing Billions More Than Estimated To Offshore Tax Havens: Group

Canada Revenue Agency accused of "misleading" Canadians on its fight against tax evasion.

11/07/2017 12:27 EST | Updated 11/07/2017 12:27 EST
THE CANADIAN PRESS/Sean Kilaptrick
The Canada Revenue Agency headquarters in Ottawa on Nov. 4, 2011. The "Paradise Papers" leak of offshore tax haven documents suggests Canada is losing much more money to tax avoidance than previously estimated, says a watchdog group.

The "Paradise Papers" leak of offshore tax haven documents suggests Canada is losing much more money to offshore tax havens than previously estimated, says a watchdog group.

Canadians for Tax Fairness estimates that Canada's government loses between $10 billion and $15 billion annually "due to corporate tax dodging using tax havens." Prior to the Paradise Papers, it had estimated the losses at $5 billion to $8 billion annually.

The group's director Dennis Howlett noted that the Paradise Papers show, on a per capita basis, Canadians are twice as likely to use offshore tax havens as Americans.

He suggested that may be due to the fact that the U.S. Internal Revenue Service (IRS) is "much more aggressive and much more effective" in pursuing tax evasion, though that "that may change because of Trump's administration."

Canadians for Tax Fairness is adding its voice to a growing chorus accusing Canada Revenue Agency (CRA) of "misleading" Canadians about the government's fight against tax havens.

The Paradise Papers, a leak of some 13.4 million records mostly from offshore law firm Appleby, included the names of at least 3,300 Canadians who have reportedly stashed money abroad. Among them were three former Canadian prime ministers — Brian Mulroney, Jean Chretien and Paul Martin — as well as the Liberal party's top fundraiser, Stephen Bronfman.

Though the use of offshore accounts is not itself illegal, they're are often tied to illegal activities, including failure to report income.

Aaron Harris / Reuters
Former Prime Minister Jean Chretien speaks at the 50 Years of Standing Up for Canada event in Toronto, Jan. 21, 2014. Chretien has denied any impropriety after his name appeared in the Paradise Papers leak of offshore tax haven documents.

The Canada Revenue Agency issued a statement amid the Paradise Papers leak, saying it would not hesitate to investigate new evidence of tax evasion.

But some accused the agency of exaggerating its efforts.

"The CRA are up to their old tricks of trying to mislead Canadians, this time in response to the latest leak of tax haven information," Sen. Percy Downe, a Liberal-appointed senator who now sits as an Independent, said in a statement issued Tuesday.

Downe referred to the CRA's assertion of a "billion-dollar investment" to combat tax evasion in the two most recent budgets, and said the agency had in fact spent less than $40 million of that money.

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"They also describe hundreds of audits and dozens of investigations, but when you go to the CRA website to look for the results of these activities, you see very little evidence of convictions and sentences for overseas tax evasion," Downe said, noting the CRA seems to have much better luck securing convictions for domestic tax evasion.

Howlett largely agreed with Downe's assessment.

"They point to all the investigations underway, but there are not many convictions," Howlett told HuffPost Canada in an interview.

"Often, there is no public information available. So we have no idea whether they forced people to pay the full tax bill. We don't know who's been convicted."

Howlett lauded some of the CRA's recent efforts, but said the agency "doesn't have a chance" of combatting the problem effectively until loopholes in Canada's tax laws are closed.

Canada falling behind


Currently, Canada has tax treaties with a number of countries known to be tax havens, allowing people to park wealth in those regions, paying little to no tax, then allowing them to return that money to Canada, without paying Canadian taxes.

Howlett said Canada has fallen behind other countries in developing laws to combat offshore tax evasion. For instance, he noted that some countries have passed "economic substance" laws that require a business to prove that a subsidiary is more than a tax shelter, by providing evidence that it has staff and activity.

This summer, NDP MP Murray Rankin tabled a private member's bill that would do just that. The NDP notes that the U.S. passed a similar law under the Obama administration. Such a law would allow Canada to recover up to $400 million in tax revenue every year, Canadians for Tax Fairness estimates.

$261 billion in Canadian wealth stashed offshore


According to the group's analysis of Statistics Canada data, there was $261 billion of Canadian wealth stashed in the top 10 most popular tax havens at the end of 2016. That, however, is just what is officially known. Howlett estimates that there is at least another $100 billion of Canadian wealth hidden off the books.

Notably, the amount of money reported in tax shelters fell slightly from 2015 to 2016. Howlett suggests that last year's leak of the Panama Papers may have had something to do with that.

Leaks like the Panama Papers and the Paradise Papers "change the risk calculation" for people and businesses using tax havens, Howlett said.

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