The government in Halifax announced a $300 million forgivable loan to Irving Shipyards last week.
K.C. Irving was one of the first Atlantic Canada industry moguls to publicize his use of tax havens in 1971, when he moved his assets to Bermuda to avoid scrutiny, particularly from Revenue Canada.
Tax havens have since multiplied and now manage roughly one third of the global GDP, said John Christensen, speaking at a forum on tax fairness organized by Nova Scotians for Tax Fairness, held this past weekend.
Sometimes described as a “shadow economy,” the unregulated flow of money in and out of countries that operate as tax havens make it possible for major corporations to avoid paying billions of dollars in taxes annually.
Unlike the popular image of the tax havens as a remote island in the Caribbean, many Western European countries, as well as the U.S. and even the Organisation for Economic Co-operation and Development (OECD), play key roles in maintaining and promoting tax havens.
The OECD writes the rulebook that makes it possible for tax havens to operate. The developed economies of Western Europe and the U.S. benefit from a system that allows corporations to avoid regulation and taxation of their wealth.
The use of tax havens not only impoverishes governments like Greece, as a result of tax avoidance, it also adds costs to consumers who end up paying for multiple financial transaction costs.
Take the case of bananas. Bananas imported from the Caribbean seem to be shipped directly to the U.K.
As a recent investigation by the Tax Justice Network (U.K.) has shown, on paper it’s a different story: the 'paper' bananas pass through six separate tax havens on their way to U.K. grocers, each with their own financial transaction costs, with the sole objective of qualifying for tax breaks on their arrival in the U.K.
This process creates what economists call a “market distortion”: more than half the price tag in British supermarkets is the result of these “financial transaction costs.” Producers and consumers pay the price in this elaborate tax avoidance scheme.
The impact on developed and developing economies of aggressive tax lobbying on behalf of corporations is a race to the bottom to achieve tax policies that favour the latter in the hope of attracting investment. The reality is that such policies impoverish those societies by allowing massive tax evasion. Those working for corporations are able to use public services such as roads, infrastructure, and medical services but avoid contributing to their cost, while leaving the majority to foot the bill and causing governments in crisis to reduce public services.
The solution, says Christensen, is to strengthen international cooperation by requiring governments to exchange information with one another, and corporations to report and disclose ownership and profits. In Canada, organizations such as Canadians for Tax Fairness are calling on our federal government to support international efforts to put an end to tax havens.
Interested in learning more about tax havens? Check out this event on Wednesday, April 4:
MINI LAW SCHOOL: "Buried Treasure: The use and abuse of tax havens" w/ Professor Geoffrey Loomer
Dalhousie University, Schulich School of Law, University Ave, 7 pm, rm 105.
A staggering amount of individual and corporate wealth flows into or through low tax jurisdictions, often called "offshore financial centres" or "tax havens". In this lecture, we'll explore how tax havens have been used for evasion and avoidance, and how governments have responded, particularly since the 2008 financial crisis.
