Panama Papers: US and Canada have to clean up their acts
The so-called Panama Papers scandal this week couldn’t have come at a worse time as everyone files their tax returns.
It’s particularly galling since the tax rate for high-income earners is now a record 54 per cent, and rich Canadians and multinationals can avoid taxation by using offshore tax avoidance schemes.
The fact is that making fortunes in Canada, then taking them offshore to never pay taxes again, is a well-worn Canadian tradition. It’s all very legal. But morality is another matter.
While it’s hard to imagine, Canada is one of the world’s biggest secrecy and tax havens. Shell companies, offshore entities and proxies own, buy and sell assets here every day. In fact, my first job in Canada (many years ago) was working for a lawyer who created paper shell companies for the country’s richest individual, industrialist E. P. Taylor, so he could divide his huge income in order to pay a minuscule small business income tax.
A Canadian lawyer invented the numbered company, and Canada allowed it, all in order to hide beneficial ownership.
Canada also spawned another tax-dodge pioneer — K.C. Irving of New Brunswick — who in 1972 moved to tax-free Bermuda and placed ownership of his empire into a series of Bermudian trusts that have never paid taxes to Canada.
Since then a large chunk of an entire Canadian province has been owned by a series of trusts worth billions of dollars that don’t pay Canadian taxes.
Clearly, Taylor and Irving were ahead of their time, but their “business” model has become dangerously massive in Canada, and globally, removing trillions of dollars from national economies and tax departments around the globe.
I’ve written about this for years, but the Panama Papers reveal the extent of just one law firm who avoids, or evades, taxes.
It’s not just a fairness issue, but hiding assets or spiriting assets out to secrecy and tax havens has facilitated the wholesale looting of Africa, China, Russia, Ukraine and other developing economies. It also launders the proceeds of crime and, in developed countries like Canada, contributes to lower services and obscenely higher taxes for the middle class.
The U.S. taxes citizens wherever they live and hunts them down vigorously if they cheat. But Canadian citizens or immigrants can move to lower-tax jurisdictions at will. This means that the wealthiest — who have made millions or billions — can leave, pay a smallish or negotiated departure tax then never be on the hook to pay taxes again. Even when caught, pursuit is lukewarm as happened two years ago when similar revelations about Luxembourg surfaced.
This is foolish public policy, considering that even if they play the tax-avoidance game legally, they owe Canada. The country provided them with opportunities as a result of public education, a stable financial system, legal system, sound economy, infrastructure and security.
Fortunately, most of the wealthiest people in Canada have not left yet, but more will as the magic threshold of 50 per cent is exceeded and as loopholes exist.
Worse yet, there is massive money laundering through Canadian real estate — or conceal-estate — in Toronto and Vancouver condos. Foreigners use shell companies or proxies to acquire condos in these cities, with the help of Canadian banks, developers and brokers. These players have made housing unaffordable in both cities.
I’ve crusaded, with others, but the most powerful lobby in this country is the offshore lobby — banks, accountants, lawyers, money managers — who reward politicians for not bringing in reforms.
It’s important to point out that some offshore manoeuvres are legal if people have switched tax residency and paid a departure tax. They shouldn’t be.
Canada should legislate full transparency and public disclosure by both Canadians, residents and foreigners who invest here, as the U.S. is proposing to do with real estate and shell companies. Laws should require Canadian citizens to pay taxes on worldwide income and assets whether they leave or not.
Then Canada can join the international movement to shut down the tax avoidance industry globally.
If unaddressed, the estimated $32 trillion worth of untaxed offshore funds will double and redouble at the expense of nation-states and societies. The rich will get richer and the rest of the world will get potholes, social unrest and political instability.