The fight against international tax avoidance is slowly being organized. Very slowly, even, especially in Canada. Too slowly, especially, for the taste of many developing countries who fear that all this is in vain.
THE Globe and Mail reported on Tuesday that former Libyan dictator Muammar Gaddafi hid billions of dollars stolen from his people in Canada. And they are still there, cool, in bank accounts, 12 years after the leader’s death.
It’s the kind of story that many Canadians probably wouldn’t have imagined their country could be associated with. Dictators and criminals fleeing justice, like multi-millionaires and multinational corporations hiding from the taxman, normally turn to tax havens, not countries normally respectful of the principles of justice and the rule of law.
But now, not all tax havens are small islands with palm trees or countries in the hollow of the Alps. In fact, the number one country contributing to the global problem of tax havens and financial secrecy is the United Kingdom, according to the most recent review by the specialist NGO Tax Justice Network. It is, in fact, responsible alone for more than 13% of the approximately US$475 billion in direct tax losses suffered worldwide this year (compared to indirect losses three times higher). Next, just behind, the Netherlands (2ewith 12.6% of the total) then, a little further, the United States (7arewith 4.4%) and, in twelfth place, Canada (with 2.5%), ahead of the British Virgin Islands (13e), Panama (24e) or Malta (31e).
The bad student
Indeed, while Canada loses nearly $3.7 billion in tax revenue each year through abusive corporate avoidance transactions ($1.4 billion) or wealthy individuals ($2.2 billion), its overly permissive rules and its negligence cause the rest of the world to lose three times as much ($11.6 billion) — $11 billion on the corporate side and almost $600 million on the side of unscrupulous individuals.
For companies, the problem in Canada is due in particular to its very accommodating tax rules in the mining sector. It also comes from its many bilateral tax treaties signed with tax havens and supposed to avoid double taxation, but which often turn “to double non-taxation”, had explained to the Dutytwo years ago, a spokesperson for the Quebec collective Échec aux paradis paradis.
On the private side, dishonest people especially find it much too easy to hide their assets behind all sorts of shell companies and nominees. A veritable dunce in this area, Canada would thus have allowed, among other things, the laundering of at least CA$46 billion in 2018 alone, estimated the following year a committee of experts responsible for looking into the real estate market of the region. British Columbia and who then spoke of a “conservative” assessment.
However, the situation may well be improving on this front. Finally embarrassed by its delay, Ottawa presented, in March, a bill aimed at creating a “register of beneficial ownership of companies” (C-42). Strongly inspired by new rules already put in place this spring by the Quebec government, the legislative text uses the data banks of the Canada Revenue Agency and provides for penalties of up to $200,000 or 6 months in prison. for those who fail in their obligations to clearly indicate who owns what.
Currently being studied by the Senate, the reform has generally been well received by specialized bodies. Some, however, would have preferred that the obligation of transparency apply as soon as an individual controls not 25%, but 10% of a company, explained to the Duty Wednesday Edgar Lopez-Asselin, coordinator at Échec aux paradis paradis.
Hopes and disappointments at the OECD
Canada is not alone in trying to reduce the scourge of tax havens and bank secrecy. A particularly delicate question since the financial crisis of 2008 and of an eminently international nature, the cause was mainly brought by the Organization for Economic Co-operation and Development (OECD), at the request of the governments of the G20 countries.
This work notably gave birth to a mechanism for the automatic exchange of information between countries on individuals who hold accounts abroad. A two-pillar system is also being put in place, in which 138 countries representing more than 90% of the world economy have agreed to participate. The first pillar is to force the largest multinationals to report where they actually do business and how much tax they pay there. The second pillar should allow, from next year, countries that find that a multinational does not pay at least 15% tax on its profits to collect the difference.
This new regime would have allowed, under the first principle, a fairer distribution between countries of US$13 billion to US$36 billion in tax revenue in 2021, the OECD estimated in January. As for the minimum tax, it would have brought in 220 billion in additional tax revenue.
The reform put forward by the OECD is not going without attracting criticism. And not only because of the extreme slowness at which it has progressed since 2012. It remains essentially a project carried out by and for the rich countries, deplore in particular the developing countries.
It is true that the absolute amount of tax losses inflicted by tax havens is much higher in rich countries (426 billion per year) than in low-income countries (46 billion). But since the tax resources of the latter are also much lower while their needs are immense, their shortfall hurts more, notes the Network for Tax Justice.
However, the new OECD rules will be made in such a way that they will mainly benefit the places where the head offices of multinationals are located, that is to say the rich countries, and that several poor countries will not have the logistical means to avail themselves of it, predict their critics. In any case, the minimum tax of 15% is much lower than the effective rate of 25% to 30% often in force in Africa, Asia and Latin America.
Disillusioned, several developing countries are now demanding that the process of drawing up new, fairer international tax rules be placed under the aegis of the United Nations. The case should also be debated there this fall. But that, it is admitted, will not help to speed things up.