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Harper Signed Free Trade Deal With Panama Despite Tax Haven Concerns

The Liberals voted for it, too.

The release of the Panama Papers, linking numerous world leaders and high-profile figures to offshore accounts, may be a good time to remind readers that Canada has a free trade deal with Panama.

Critics of the agreement have said it could make it harder for the government to investigate and prosecute tax evasion involving offshore accounts held in the country.

The Harper government reached the deal with its Panamanian counterparts in 2009, agreeing to eliminate tariffs on 99 per cent of trade between Canada and Panama eventually, including trade in financial services.

Despite raising concerns about Panama’s reputation as a tax haven, the Liberal Party voted to ratify the deal in parliament in 2012. The NDP, then the official opposition, voted against it. It has been in force since April 1, 2013.

Liberal MP Scott Brison, then the party’s trade critic, said in 2009 that Panama’s tax policies “are an area where we have a concern.”

But he later argued in favour of the deal in parliament, saying it and other agreements in Latin America “create opportunities for construction and infrastructure companies, opportunity for the financial services sector, for the agricultural sector.” Brison asserted Canadian companies would help “set the standard in terms of socially progressive and environmentally sustainable behaviours" in Latin America.

The leak of the Panama Papers brought one Canadian company’s name into focus: Royal Bank, which was identified as having created 370 offshore companies in Panama through Mossack Fonseca, the law firm whose trove of account data was leaked.

According to the Toronto Star, some 350 Canadian individuals with offshore tax haven investments have been identified in the leaked documents.

"Having a trade agreement without first tackling Panama's financial secrecy would incentivize even more offshore tax dodging."

Setting up offshore corporations and accounts is not in and of itself illegal, and many businesses and wealthy individuals use them for legitimate purposes. But offshore accounts are notorious for being used to evade taxes.

Activists argued the Panama trade deal could worsen the tax evasion phenomenon.

"The pact would give new rights to the government of Panama and the hundreds of thousands of offshore corporations to challenge Canadian anti-tax haven measures outside of the Canadian judicial system," Todd Tucker, research director at Public Citizen's Global Trade Watch, told parliament in 2010.

"The Canada-Panama trade deal would worsen the tax haven problem … As the OECD has noted, having a trade agreement without first tackling Panama's financial secrecy would incentivize even more offshore tax dodging."

The OECD reiterated its warning about Panama last month, telling G20 finance ministers the country was back-tracking on a promise to implement automatic sharing of financial account information.

"The consequences of Panama’s failure to meet the international tax transparency standards are now out there in full public view. Panama must put its house in order, by immediately implementing these standards," OECD secretary general Angel Gurria said in a statement.

Critics often accused the Harper government of dragging its feet on the issue of tax evasion. On that front, the new Liberal government has taken more concrete steps.

Their first budget, released last month, allocated $444 million to Canada Revenue Agency to help combat tax avoidance and evasion. The money is expected to have a big windfall, with the Liberals estimating it will help bring in $2.6 billion in additional revenue over five years.

For years, Canada was among the few developed countries that did not estimate its “tax gap” — the money the government loses to tax cheats every year.

Liberal Sen. Percy Downe said this week, following the Panama Papers release, that he has been assured Canada Revenue will now work to estimate this number.

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