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The Progressive Economics Forum

Canadian banks use of tax havens keeps growing

A growing share of Canada’s investment overseas is being channeled by Canadian banks into tax havens.

The latest Statistics Canada figures  show 24% of Canadian direct investment overseas in 2011 went to the top twelve tax havens, up from 10% in 1987.   In fact, tax havens of the Barbados, Cayman Islands, Ireland, Luxembourg and Bermuda were five of the top eight national destinations of total Canadian investment abroad, with the US, UK and Australia the only countries not considered tax havens in this group.

 

 

These totals would be even higher if they included figures for other tax havens such as Monaco, Liechtenstein and many others where the figures either aren’t available or weren’t made available for confidentiality reasons.  They also don’t include money going to tax havens associated with the UK and the US, such as Channel Islands, or through banks in those countries.

The finance and insurance sector now accounts for over 51% of Canada’s total direct investment overseas, more than double its share from 1987, more evidence that a large share of this money is going overseas to avoid taxes.   The Harper government has lauded Canada’s growing investment overseas, claiming it shows looser foreign investment rules (which allowed numerous takeovers of Canadian industry) have been beneficial, but the actual figures show the reality is quite different.  A large and growing share of this money isn’t going into real capital investments that could ultimately benefit people overseas or in Canada; it’s going into tax avoidance that benefits a wealthy few at the expense of the large majority in Canada and around the world.

Last month, James Henry–former chief economist of McKinsey & Co, the top corporate consulting firm in the world–released a report he wrote for the Tax Justice Network, The Price of Offshore Revisited, estimating that $21 to $32 trillion is held in tax havens worldwide.   This amounts to an estimated $190 to $280 billion of lost income tax revenues annually: more than twice the amount all OECD countries spend on international development assistance worldwide.   Poor and developing nations are especially harmed by tax havens, as they are extensively used by political and corporate kelptocrats and multinationals operating in those countries to avoid taxes.

CBC’s The Current radio show had a very good interview with James Henry about this issue on Aug 16th and with Alain Deneault, the Canadian author of Offshore: Tax Havens and the Rule of Global Crime.   Another major attraction of tax havens is of course their secrecy, which enables not just the wealthy to avoid taxes, but also criminals to both avoid taxation and prosecution.

Unfortunately, there isn’t much evidence our political leaders are doing much about this as the problem continues to grow.   As Alain Deneault said, they always go after the small people on taxes.   Meanwhile, high profile politcians such as former Conservative Finance Minister Michael Wilson chairs the Canadian operations of international banks such as UBS and Barclay’s that do a lot of business in tax havens — and recently refused to appear before Commons committees looking examining this issue.

The use of tax havens is also fuelled by and exacerbates growing inequalities of income and wealth: highly affluent individuals and corporations with a lot of excess money they aren’t productively investing back into the economy or spending on their needs.   Canadian banks have also been complicit in building up some Caribbean nations into tax havens–and use them to avoid billions in tax annually themselves, as Quebec economists Leo-Paul Lauzon and Marc Hasbani showed when they examined the annual reports of Canada’s big five banks a few years ago.

Canada’s House of Commons Finance Committee will be examining the issue of tax havens again this fall.  It’s a growing problem with real consequences, especially as governments cut public spending ostensibly to tackle their deficits. Hopefully they will be able to make more progress this time and stem some of this flow.  Otherwise the dirty little secrets of Canadian banks is going to grow a lot bigger.

Notes: Figures on FDI are from Statscan Cansim table 376-0051 (by country) and 376-0038 (by industry), available to download for free.  The Congressional Research Service has a  list of countries considered tax havens in their relatively recent report on Tax Havens: International Tax Avoidance and Evasion.

(Revised 17 Aug)

 

 

Comments

Comment from rcp
Time: August 17, 2012, 10:53 am

Toby, what’s your source for stating that Canadians have invested $390 billion in Barbados over the last decade, and $175 billion in the Cayman Islands over the same period? The Statscan data that you linked to shows a total position of $53.3 billion in Barbados and $25.3 billion in the Cayman Islands at the end of 2011.

Comment from Toby Sanger
Time: August 17, 2012, 5:06 pm

Thanks, rcp. My mistake! The figures are of course stocks, not flows, so I deleted that sentence. Everything else still applies.

Comment from rcp
Time: August 17, 2012, 6:25 pm

You’re welcome, Toby. Your information on tax enforcement is also a bit out of date. See:

(tinyurl.com/8e2tl4r)

in order to find out that Canada has a tax treaty with Barbados (not news, been in place for 20 years or so, definitely helpful to Paul Martin) but also has TIEA’s with the Cayman Islands, the Channel Islands, and other tax havens. Each of these give CRA what it needs to pursue cases of tax evasion.

Comment from Toby Sanger
Time: August 17, 2012, 6:50 pm

I’m certainly aware that Canada has many tax treaties in place and signed many TIEAs in recent years, including with tax havens. But having a treaty or agreement in place, getting information and doing something with it are all different things. The OECD and former finance minister Paul Martin claimed they were doing a lot to crack down on tax havens in the 1990s and I certainly believed them at that time, but it doesn’t look like it had much impact, does it?

Despite the Canadian government entering into these treaties, signing agreements and claiming that they’re doing something about the problem, the money flowing into tax havens from Canada continues to escalate — which is the point of this post.

Comment from Paul Tulloch
Time: August 17, 2012, 6:59 pm

it is criminal, and until it is thoroughly rejected as criminal behaviour- i.e. serious steps taken to prevent it, it will continue to rise due to the increased concentration of wealth.

Makes you wonder how these people think about life. A very corrosive and hollow ethical perversion of the rights and notions of the worthy.

A very big contradiction that requires more airplay and eventually what is left of democracy will demand change. I too thought that Martin was going to put some emphasis on such measures- but then I recall his very rich dad had his massive shipping business registered off shore to dodge the taxman. We sure are a sick country at that political elite level- when your own finance minister has his families country registered off shore.

Comment from Gertie
Time: August 22, 2012, 5:45 pm

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Comment from Arby
Time: August 22, 2012, 10:30 pm

I ‘enjoyed’ their CBC segment called “Anchors Away,” about the destructive Paul Martin (and his hypocrisy on the use of flags of convenience). I copied and pasted everything I could get my hands on. But my life has been absolutely chaotic and I haven’t been able to shield myself from the effects. All that info is lost. And I see that Anchors Away is gone. I don’t know whether it exists somewhere, but I’d love to retrieve it because I love to show people what Paul Martin, and rightwingers like him (Liberals) is really about.

Comment from rcp
Time: August 23, 2012, 4:48 am

@paul, arby, on Paul Martin: I agree that he is/was a colossal hypocrite. During the 1995-1997 era especially, every time he brayed that Canadians had to pay their “fair share” in taxes, I thought to myself: “easy enough to say that when your company is incorporated in Bermuda”. Never trust a politician who advocates taxes that they themselves won’t have to pay.

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