Stephen Bronfman (left) is chief fundraiser for the Liberal Party and a long-time friend of Prime Minister Justin Trudeau (right). Bronfman has been linked to a $60 million US offshore trust in the Cayman Islands that may have cost Canadians millions in unpaid taxes.
TAKE THE MONEY AND RUN. That’s what the richest of our rich do. And we let ‘em.
We let ‘em run away to “tax havens” outside Canada. We let ‘em park their profits there. Then presto, with no profits in Canada, there is no Canadian income tax to pay.
It’s all legal. The really rich have been sneaking their money away like this for years. We got a big peek at how many of them do it and how they do it with the November 2017 release of a stash of 13.4 million secret documents called the Paradise Papers.
Among the Canadians mentioned in connection with the Paradise Papers are Stephen Bronfman, a financier for one of Canada’s wealthiest families and chief fundraiser for Justin Trudeau, as well as former prime ministers Jean Chretien, Paul Martin and Brian Mulroney.
K.C. Irving: a tax haven pioneer
K.C. Irving of New Brunswick was a tax haven pioneer. In 1972 he moved to tax-free Bermuda and placed ownership of his empire into a series of Bermudian trusts that have never paid taxes to Canada. The result is that most of New Brunswick is still owned by a series of tax-free Bermuda Trusts on behalf of the Irving family.
How to work the tax haven dodge
First make pots of money doing business in Canada. Then set up a subsidiary in a friendly foreign “tax haven” country, a post office box will do. Your parent corporation back in Canada can then shift your profits to the shell company in the tax haven. The tax haven country collects little or no taxes. However, through the magic of accounting, your parent company keeps all its losses in Canada, where they are tax-deductible.
Your corporation can then bring all its un-taxed profits back to Canada and convert them into dividends for shareholders, share buy-backs, mergers and acquisitions, and fat salaries and bonuses for its executives and other top officials.
Canada’s 60 biggest corporations have more than 1,000 subsidiaries in offshore tax havens; only four don’t have any subsidiaries in tax havens, and some have more than 50. These findings are part of a November 2016 in-depth report, titled “Bay Street and Tax Havens: Curbing Corporate Canada’s Addiction” prepared by Canadians for Tax Fairness.
Among Canadian corporations, one sector emerges as the most profitable. It’s also the sector with the companies that pay the lowest taxes: banks.
In 2016 Canada’s Big Five banks (BMO, CIBC, RBC, Scotiabank and TD) were the five most profitable companies in Canada. Collectively, they booked $44.1 billion in pre-tax profit. Their 2017 profits were even higher.
Also in 2016 those five banks avoided $5.5 billion in tax.
This was not a one-off. Over the past six years, while the Big Five keep posting record profits, their tax rate keeps dropping.
BMO will go on trial in June over a $288 million tax cheating operation that included the use of shell companies, loans and stock swaps.
According to Statistics Canada, pre-tax profits in the banking sector as a whole soared by 60% from 2010-2015. During that period, the sector’s tax rate dropped by almost the same amount.
The banks do not admit to using tax havens to lower their tax rate. However, they do say they manage it through the magic of “international operations.” All the banks have “international operations” in tax havens.
Canadian banks have subsidiaries in 22 different countries, including: Barbados (0.25 — 2.5 per cent corporate income tax), the Cayman Islands (0 per cent), Ireland (12.5 per cent), Bahamas (0 per cent), Bermuda (0 per cent).
Many of these tax haven subsidiaries have tiny offices, but account for massive profits. TD, for instance, has a subsidiary in Ireland that is valued at over $1 billion, even though TD Ireland employed only two of the bank’s more than 85,000 staff.
The banks, of course, plead that their income tax rate does not give a completer picture of how much they pay in tax. They say a complete picture should include payroll taxes, social security contributions, excise taxes, sales taxes and property taxes.
Problem is, this is not how regular people calculate their income tax rate. If it was we would include taxes like the HST we pay on everything we buy, our property taxes and water bills, etc. If we did that our personal tax rate would balloon also.
The banks also want us to give them credit for using part of their monster profits to do good works, like providing multimillion dollar support for non-profit community groups across the country.
In the past six years, total donations made by the Big Five amounted to less than one-tenth of what they avoided in tax.
Sneaking away with your millions to tax havens isn’t the only way the rich avoid taxes. Canada’s largest corporations are past masters at using all kinds of other complex techniques and tax loopholes to reduce their taxes significantly below the official corporate tax rate set by the government.
If Ottawa closed all the loopholes used by large corporations, it could collect 40 times more than it hopes to get back by closing loopholes open to small corporations.
Canada’s biggest 102 companies have avoided paying $62.9 billion in income taxes over the past six years.
These companies finagled their way into a whopping 33% discount on their tax rate
If the government closed that gap we stand to gain $10 billion every year. Think about what we could do with $10 billion more each year. That’s a national child care program, universal pharmacare, free university for 1.6 million young Canadians. Or, if you’re fiscally conservative, you could use it to reduce the deficit.
Historically, businesses have argued that raising corporate tax will hurt investment. But StatsCan numbers show that drastic cuts to the corporate income tax rate over the last 20 years have not stimulated new business investment.
Between 1997 to 2016, Canada’s corporate income tax rate was cut almost in half, from 43 per cent per cent to 26.7 per cent. But investment in machinery and equipment and in intellectual property is still below the 1997 level as a per cent of GDP.
It’s said death and taxes are all we can be certain of in life. In Canada it seems corporate tax avoidance and evasive is just as certain.