Largest Canadian Labour Union calls Barbados “Tax Haven” a “problem”
An article at the Toronto Sun news agency says that a Canadian House of Commons committee recently began probing offshore accounts and tax evasion. Some Canadians are concerned that Canada’s government is “missing out on billions in potential revenue” because of low tax countries. The article names Barbados, Bahamas and the Cayman Islands.
“I was really struck to the extent to which this trend seems to be increasing when we were assured it was less of a problem… This money is not going into investing in real activities and in growing the (Canadian) economy.”
…Toby Sanger, Canadian Union of Public Employees CUPE senior economist. CUPE has almost 600,000 members and is Canada’s largest workers’ union.
This is serious business for Barbados because our national economy and well being are highly dependent upon that offshore investment from Canada. Not only that, our tourism industry is also closely linked with the offshore banking and investment sector. Many Canadians and other tourists who head for Barbados in the winter are coming for their “annual shareholders meeting” that just happens to be scheduled every year in the middle of the coldest winter months.
And don’t kid yourself that it’s about all offshore jurisdictions: Barbados is a big big player in Canadians’ offshore tax strategies. I once heard it said that Barbados is the #1 Caribbean country for Canadian offshore banking and companies. I don’t know if that is still true, but Barbados is big enough that we are squarely in the sights of those who want to curtail the ability of Canadians to pay lower tax rates.
All Hands on Deck!
The Toronto Sun article seems to be a balanced piece that gives both sides of the Canadian debate. There is a side that says offshore banking and corporate centres like Barbados actually benefit the Canadian economy by allowing Canadian companies to be competitive in the world markets.
The danger for Barbados is that in bad times governments can get focused only upon revenues and lose sight of the big picture.
As we’ve seen occasionally in Barbados, governments can raise taxes too much and ‘kill the goose’. Some Canadians want their government to restrict access to offshore banking centres like Barbados, and don’t realize this would harm Canadian industry in the long run.
Let’s hope that our government acts decisively and swiftly to convince the Canadian Government, tax authorities and Canadians in general that both countries greatly benefit from our long standing relationship and the agreements that allow both Canada and Barbados to prosper in the world economy. We are both lesser without each other.
Please read the article at the Toronto Sun, but we’ll reprint it here because sometimes articles go missing in cyberspace and then we have nothing to support our fair commentary.
Rising investment sparks offshore tax debate
Offshore financial centres continue to attract billions of dollars of Canadian cash despite the fact that overall investment overseas has been declining, creating debate as to whether Canada is losing out on revenue.
According to Statistics Canada, direct investment abroad dropped for a second year in 2010, falling by $4.5 billion to $616.7 billion, pulled down in part by a strong loonie.
However, investment in low-tax countries such as the Bahamas, Barbados and the Cayman Islands all continued to rise. So did the amount invested offshore by Canada’s banks and financial institutions, which accounted for half of all investment abroad last year.
Canadian investment through offshore financial centres totals about $100 billion, or 20% of the total. However, the money rarely stays in the tax havens and is usually passed onto to operations elsewhere around the globe.
The company is then able to pay tax on these operations at low to zero rates — 2.5% in Barbados, for example — and repatriate the remainder to Canada.
Some say that means the government here is missing out on billions in potential revenue.
“I was really struck to the extent to which this trend seems to be increasing when we were assured it was less of a problem,” said Toby Sanger, senior economist at the CUPE union. “This money is not going into investing in real activities and in growing the (Canadian) economy.”
It’s a hotly contested debate and one that was aired in a House of Commons committee probing tax evasion and offshore accounts as recently as March.
On the other side of the debate are those who say that offshore financial centres are an essential tool to help Canadian companies compete in global markets.
Walid Hejazi, a professor at the University of Toronto’s Rotman School of Management who spoke at the committee hearing, warned against confusing tax evasion by using offshore accounts with tax minimization.
“When they are using them for tax minimization, it’s completely legal,” Hejazi said. “There is far more tax evasion within Canada than there is outside.”
He estimated the amount saved in taxes through offshore centres is about $4 billion a year. That’s way less than the $50 billion or so that is thought to be lost through evasion and under reported taxes at home.
While it’s complex to estimate the exact size of the underground economy in Canada, most studies, including one by right-wing think-tank The Fraser Institute, calculate that it’s probably about 15% of gross domestic product.
Hejazi said without the centres, Canadian companies would not be able to compete on a global stage.
“Every country in the OECD allows companies to use these centres,” he said. “If it were so bad, why would they allow it?”
He argues that the competitive edge helps generate greater profits for the companies, which end up boosting revenues in Canada indirectly, through taxes of dividends paid to shareholders, for example.