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Canada's Largest Corporations Have 1,000+ Subsidiaries In Offshore Tax Havens: Report

All but four of the largest TSX-listed companies are "doing business" in known tax havens.
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The vast majority of the largest publicly-traded companies in Canada collectively have more than 1,000 subsidiaries in offshore tax havens, according to a new report from Canadians for Tax Fairness.

Of the 60 largest companies listed on the Toronto Stock Exchange, all but four have subsidiaries in known tax havens, the report stated.

It said the use of those subsidiaries costs Canada $10 billion to $15 billion annually in lost tax revenue — enough to pay for a universal pharmacare program, or free university tuition across the country.

An aerial view of Hamilton, Bermuda. Canadian companies have $31 billion in assets on the island, but only 35 employees.
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An aerial view of Hamilton, Bermuda. Canadian companies have $31 billion in assets on the island, but only 35 employees.

"Companies often argue that their investments in those jurisdictions are legitimate businesses and not brass plate subsidiaries, but the evidence suggests otherwise," report author Diana Gibson said in a statement emailed to media.

Gibson says that in Bermuda, Canadian companies have listed a total of $31 billion in assets, but have only 35 employees.

"In non tax haven jurisdictions there would typically be thousands of employees for an investment that large," Gibson said.

Not illegal

Gibson notes that it's not illegal for a corporation to set up a subsidiary in a low-tax jurisdiction, "and that is the problem. ... We need corporate tax law reform that makes it illegal to use a tax haven for tax avoidance."

Until that happens, "the (Canada Revenue Agency) is being asked to do its job with one hand tied behind its back," she added.

The report found the use of offshore tax havens among Canadian companies has exploded since the 1990s, rising to $284 billion invested in the top 10 tax havens today, from $21 billion in 1994.

With businesses shifting assets abroad to avoid taxation, "individual taxpayers are picking up the slack," the report said.

Revenue from personal income taxes has grown from 30 per cent of all tax revenue to almost 50 per cent in 2013, the report said. Corporate taxes fell to 13.6 per cent, from 20 per cent, during that time.

The report describes offshore tax havens as "a key piece of the inequality puzzle."

It comes in the wake of the release of the Paradise Papers, a major leak of documents related to offshore tax havens from the tax firm Appleby. Some 3,000 Canadians appeared in the more than 13.4 million documents, including three former Canadian prime ministers — Brian Mulroney, Jean Chretien and Paul Martin.

Also appearing in the papers was top Liberal Party fundraiser Stephen Bronfman. Bronfman defended himself after the release, saying he has never funded or used offshore trusts. Prime Minister Justin Trudeau has said he is satisfied with Bronfman's response.

Watch: NDP, Tories slam Trudeau over Bronfman remarks

In an interview with HuffPost Canada earlier this month, Canadians for Tax Fairness executive director Dennis Howlett said Canada Revenue Agency's efforts are "mainly restricted to going after wealthy individuals," and the agency has a poor track record of cracking down on corporate abuse of tax havens.

Canada "has not kept up with other countries" in updating its laws to reduce the use of tax havens, he said.

Howlett's group is backing the idea of an "economic substance" test for offshore tax havens, which would require companies to prove they are actually carrying out business within their subsidiaries, and not just using them to avoid taxes.

NDP MP Murray Rankin has introduced a private member's bill to do just that, inspired by similar legislation in other countries.

"People are abusing Canada's tax system to gets tax breaks on transactions that have no real economic value," Rankin said in a statement.

"Enough with excuses, this type of thing should be stopped immediately and that's what we're proposing today."

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