Over the past 10 years, Canadians have invested $390 billion in Barbados, an island nation with a population of 284,000.
They’ve also invested $175 billion in the Cayman Islands, population 55,000.
So are these tiny Caribbean nations booming developing economies, hotbeds of business opportunities?
No. They’re well-known tax havens, and a new analysis of Statistics Canada data from economist Toby Sanger shows that Canada’s banks are shuffling ever-larger amounts of investment cash into these countries in order to avoid taxes at home.
According to Sanger -- a senior economist at the Canadian Union of Public Employees -- the proportion of Canadian investment that goes to offshore tax havens has grown from 10 per cent of all investment in 1987 to 24 per cent in 2011.
StatsCan figures show the amount of money going from Canada to Barbados alone grew 60 per cent in just four years, from $33.4 billion in 2007 to $53.3 billion in 2011.
"Investment" in the Cayman Islands grew nearly 30 per cent during the same period, while money going to Luxembourg grew 318 per cent, from $3.3 billion to $13.8 billion.
The data doesn’t show how much of that money went into tax havens, and how much went into actual investment in these countries, but it’s safe to assume, given the size of these countries' local economies, that the vast majority was meant for tax shelters.
Tax shelters have a real impact on government revenues. By some estimates, federal and provincial governments lose $80 billion a year in uncollected taxes, though not all of that is lost to offshore tax havens.
The problem is clearly not limited to Canada. A recent study by the Tax Justice Network found that wealthy families and individuals hold between $21 trillion and $32 trillion in offshore tax havens, costing governments $280 billion in revenue every year.
With the global financial crisis biting at governments’ bottom lines, policymakers around the world have started to take notice.
In recent years, the U.S. has run an unprecedented campaign to eliminate tax havens. The IRS is investigating 11 Swiss banks on suspicion they helped Americans hide income, following last year’s indictment of four UBS bankers on charges of aiding $3 billion worth of tax evasion. The situation has Swiss bankers so nervous they reportedly fear leaving their home country.
Prime Minister Stephen Harper signed an agreement with then Swiss president Doris Leuthard in 2010 to give Canada access to Swiss bank accounts of Canadian citizens. A CBC-Globe and Mail investigation in 2010 found that some 1,700 Canadians may be hiding money in Swiss accounts.
But the Conservative government has also been criticized for what some say is a reluctance to tackle the financial reforms needed to eliminate tax havens.
Liberal Senator Percy Downe said earlier this year the federal government seems to be bending the rules to let some tax evaders off the hook. He noted the case of some 100 Canadians found to hold bank accounts in Liechtenstein.
"Not one penny has been assessed in fines," he said of the Liechtenstein cases. "That is because not one charge has been laid. In the four years since this information has come to light, not one of these Canadians who have hidden their money abroad to avoid paying taxes in Canada have stood before a judge, in Canada or overseas."
But a spokesperson for Revenue Minister Gail Shea argued the Conservatives are doing much better than the previous Liberal government.
"As an example, in 2009-10 alone, we identified over $1 billion in additional taxes. Compare that to 2005-06 under the Liberals where $174 million was identified," the spokesperson told The Canadian Press.
(Text version below slideshow.)
TOP OFFSHORE TAX HAVENS FOR CANADIANS, 2011
5. Bermuda - $13.2 billion
4. Luxembourg - $13.8 billion
3. Ireland - $23.5 billion
2. Cayman Islands - $25.8 billion
1. Barbados - $53.3 billion
Number represents amount of direct investment by Canadians into the country in 2011. Source: StatsCan
*All countries on this list are identified as tax havens by the Congressional Research Service.