Legalizing Theft by Alain Deneault

Author:Alain Deneault
Language: eng
Format: epub
Publisher: Fernwood Publishing
Published: 2018-07-25T16:00:00+00:00

5 Who Says It’s Legal?

They want us to believe that laws are written by gods. Once pundits have explained that the use of tax havens by major corporations and wealthy individuals is “legal,” the debate, apparently, is supposed to be over.

If Canada, over the past few decades, had chosen not to make any law dealing with the relations between companies established in Canada and offshore jurisdictions, we would be collectively better off today. In formal terms, Canada is the architect of our collective impoverishment. By ratifying multiple tax treaties and tax information exchange agreements with accommodating jurisdictions, it has helped capital move out of the reach of tax authorities. Of its own volition, Canada chose to sign the treaty with Barbados for the avoidance of double taxation that we have mentioned in previous chapters. This initiative allows foreign companies to create entities in Barbados that are subject to a maximum tax rate of 2.5 percent.1 Among other things, the treaty facilitates transfer pricing as a tax avoidance technique. Canada has continuously reviewed the terms of the agreement to favour increased transfers by corporations from Canada to this accommodating jurisdiction. In 2010, the entire insurance sector was authorized to send funds to the Barbados tax haven.2 On December 19, 2013, Canada then abolished one of the only remaining clauses preventing Canadian corporations from fully benefiting from the Barbados tax advantages, i.e., the requirement that decisions related to the subsidiary’s activities should be made in Barbados. This obligation, which had always been ignored, was simply removed in Article 4 of the new agreement.

Today, the Canadian government is discreetly producing more and more initiatives conferring this kind of advantage on businesses. Whenever an accommodating jurisdiction signs a Tax Information Exchange Agreement (TIEA) with Canada, our government authorizes Canadian corporations to follow the same system that applies in Barbados: corporations can register assets in the jurisdiction, then bring them back to Canada without paying any taxes on them as long as they take the form of dividends.3 As of July 2014, Canada had signed twenty-two TIEAs; one had been signed but was not yet in force; and seven others were being negotiated. Tax havens having signed such agreements with Canada include Anguilla, the Bahamas, Bermuda, the Cayman Islands, Dominica, Saint Lucia, the Netherlands Antilles, Saint Kitts and Nevis, Saint Vincent and the Grenadines, San Marino, and the Turks and Caicos Islands.4 To encourage such agreements, Canada grants significant advantages to jurisdictions that sign them: corporations residing in these jurisdictions are treated, for purposes of calculating the amount of their exempt surplus under Canadian tax regulations, as if Canada had signed a double taxation avoidance treaty with the jurisdiction.

That Canada should allow its corporations to relocate their assets to countries whose tax regime has nothing in common with its own is obviously ludicrous. According to the spirit of the law, a company that creates a subsidiary in Hong Kong, Luxembourg, or Bermuda should not be allowed to avoid double taxation as if it were a

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