05/27/2013 12:34 EDT | Updated 07/27/2013 05:12 EDT

Canadians Have a Dirty Tax Secret

The Financial Post commissioned a nationwide poll, promising confidentiality, asking Canadians if they cheated in one of the following ways: hiding income, paying cash to avoid sales taxes and/or taking undeserved entitlements. The results were shocking.

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In 1994, I wrote a book called Underground Nation describing all the immoral tax avoidance going on in Canada from rich guys parking money offshore to welfare, health care, immigration, refugee and Workers Compensation rip-offs.

But the policy response was always the same: No crackdown and higher taxes to make up for losses, rooted in the myths that the vast majority of Canadians were honest and would always pay their taxes.

So the Financial Post commissioned a nationwide poll, promising confidentiality, asking Canadians if they cheated in one of the following ways: hiding income, paying cash to avoid sales taxes and/or taking undeserved entitlements. Preface to the poll was a promise of secrecy and the statement that over-taxation and under-supervision were perhaps greater immoralities.

The results were shocking and about 40 per cent of all respondents admitted to one or all three forms of cheating. Quebec and Atlantic Canada had the highest percentage of cheating, but the malady was pervasive, blamed mostly on overspending governments or on the fact that others were doing the same.

Since then, health care and other entitlements have been somewhat tightened up, but my guess is that income or sales tax cheating and aggressive avoidance, through a range of "legitimate" actions, has gotten dramatically worse. And still nothing changes.

But now the big nations -- the United States and the European Union with its tax havens -- are finally preparing to crack down on tax leakage as they struggle with debt and entitlement burdens and slow growth.

They have few choices: High profile tax evasion in Greece, Cyprus and Southern Europe has rattled the EU, as has Russia's no-tax enticement of Gerard Depardieu to its jurisdiction. Finally, steps are being taken to remove secrecy in financial centers such as Luxembourg, Ireland, Austria and even the Switzerland.

The United States is also realizing that its tough system is being eroded by international tax gamesmanship. This week, the CEO Tim Cook of America's Darling, Apple, was grilled by Congress on its clever tax avoidance schemes around the world and pilloried alongside Wall Street's greedy and parasitic sector. Britain attacked Google's and Amazon's tax games, too.

But shame won't do the job. Only an international tax regime, and rewriting of tax treaties that facilitate cheating, will.

To that end, the Organization of Economic Co-operation and Development (OECD) is preparing a template for international tax collection to eliminate loopholes and rein in evaders that will be presented this fall to the G20.

As my poll showed in Canada, cheating is rampant. Apple testimony revealed that the company, for tax purposes, was resident of no nation in order to take advantage of the best tax deal. This, by the way, is a well-worn technique used by tax avoiders for years. As I've written many times, one of Canada's biggest business empires, the Irving group of companies in New Brunswick, is "owned" by a series of family trusts in Bermuda where there are virtually no income taxes.

Similarly, Magna Corp. founder Frank Stronach and his family dodged Canadian taxes beginning in 1994 when he became a resident of Switzerland. But he still ran the company until recently and his daughter became a Tory then Liberal cabinet minister. He now wants to be Austria's head of state.

And yet he boasted to me about leaving in 1994: "Corporate income taxes in Switzerland are negotiable. The government sat down with me and said, 'You're our customer,' and that was its attitude."

The tone at the top has been dreadful here: former Prime Minister Paul Martin's family shipping business in Barbados has been sheltered from Canadian taxes due to a favorable tax treaty between the two governments.

While Canada has been a lost cause in terms of tax reforms, the international concern builds and may finally make a difference. What may help more than any development is that, given the questionable tax behavior of America's trio of digital superstars, the United States may even agree finally to international collaboration in tax matters rather than relying on its own system, now revealed to have become exceedingly porous when it comes to corporations.

(An estimated $2-trillion of retained profits are held in tax havens by American multinationals due to tax loopholes and inadequate tax treaties.)

The OECD hopes to eliminate the use of "hybrids", or structures that arbitrage between tax jurisdictions in order to find the lowest rates. And the organization has also led calls for censure and sanctions against known tax/secrecy havens in the Caribbean and elsewhere.

Even so, the problem remains: one person's smart tax planning is another's tax evasion or one country's banking system is another's legalized money laundering instrument. Britain is a case in point, morally indignant about taxes but a haven for foreign entities, corporations and manager of the Channel Islands.

But its Prime Minister, whose father ironically made a fortune setting up tax haven structures for the wealthy, has led the call for reforms and heads the G8 this year. He spearheads a move toward transparency, possibly the best weapon to shame or catch tax cheats.

Perhaps the time has finally come for the globalization and coordination of taxation policy. But it's long overdue.

In my 2008 book, Who Owns Canada, I asked four Canadian billionaires what they thought about those who make money in Canada, leave and never pay taxes again.

Late Toronto developer Fred Degasperis, an Italian immigrant, said "Anybody successful in Canada can take their money and live six months a year plus one day and steal the money from us? No way."

Drug store magnate Jean Coutu said: "I made my money here and I owe it to the Canadian people to spend, invest and pay taxes here."

Jack Daniels, a refugee from Poland who became a successful architect and developer, said: "I would never, ever dream of doing such a thing like going offshore. It's just not right to do this to our country and its future. It's just wrong. It's awful, in fact."

And the last word goes to Seymour Schulich, Canada's foremost philanthropist: "I think you owe allegiance to the place that gave you the opportunities. Americans [individuals] pay taxes no matter where the profit was made and that's the way it should be."

*This article previously appeared in the Financial Post