Canada's own Panama Scandal: Rich Cheat with Impunity using Tax Havens

The hypocrisy of the rich has never been more glaring since the release of the Panama Papers. While the rest of the world is reeling about the scandal, we cannot forget Canada's own tax haven. Canada is not immune to the scandalous use of tax havens among the rich and famous. At least 350 wealthy Canadians listed in the documents have been implicated in the shadowy practices of tax dodging. This has proven what many Canadians already knew: that there is one set of rules for the rich, and another more punishing set of rules for everyone else.

This is not the first time in recent memory that corporate tax evasion has made the news in Canada. In March of this year, leaked information from the CBC revealed that the private accounting firm KPMG worked out a secret deal with the Canada Revenue Agency (CRA) to help 25 of their clients escape the law for using offshore tax havens on the Isle of Man. This amounted to $130 million in taxes going unpaid. Having uncovered the offshore scheme, the CRA promised KPMG clients impunity from penalties or criminal investigations. This demonstrated that the CRA, while remaining a neutral watchdog on paper, is little more than a corporate lapdog in practice.

The KPMG scandal, far from being an anomaly, is only one symptom of a much larger problem in Canada. Canadians for Tax Fairness reported that in 2014 Canadian corporations had stashed away nearly $200 billion in just ten tax havens across the globe. This is likely an underestimation, as these numbers do not include individual accounts of wealthy individuals. Billions more are parked on the sunny beaches of  Barbados ($71 billion), Cayman Islands ($36 billion) and Bermuda ($17.8 billion) to avoid paying taxes.

Although tax havens are used to shield transactions and investments from domestic tax authorities, many manage to avoid prosecution for this illegal behaviour. Millionaire Dragon’s Den television star and prospective Conservative leadership candidate, Kevin O'Leary, recently defended the schemes of the rich, saying “These [tax] structures are legal, so what? That’s the bottom line.” While this may be true, we have to ask: who wrote those laws? And in whose interests do they ultimately serve? Multinationals and associated lobby groups act like puppeteers while politicians dance on a string of their making. If tax evasion by the rich and powerful is legal while the workers are told there is no money for social services, there is something deeply wrong with the system.

The fight to shut down tax havens and keep Canadian money within its own borders is an empty gesture when political and corporate interests are in bed together. During confidential talks between KPMG and the CRA in 2014 and 2015, in the midst of the tax evasion investigation, CRA senior enforcement officials enjoyed martinis at private receptions in exclusive clubs hosted by the accounting firm. This is the equivalent of the police going for a quiet drink with the mafia to reach a gentleman's agreement. It has subsequently been revealed that there is a regular career path for senior tax investigators into corporate accountancy firms such as KPMG. Those who are meant to keep the rich accountable do not want to alienate their future bosses and when they are there, they know all the best places to hide their unbegotten gains and scam the system!

Internationally, the situation has been a political nightmare for the rich tax cheaters. British Prime Minister David Cameron has been in the hot seat for not disclosing inheritance money that was offshored in a tax haven by his father. Cameron acquired the moniker of “Dodgy Dave”, referring to the fact that he previously swore that he never used tax havens and would fight against them. Soon after, thousands marched in the streets demanding his resignation. Canada’s own version of Dodgy Dave is Paul Martin. Before Martin became the federal Liberal Finance Minister, he bought and administered Canada Steamship Lines (CSL), a global shipping company based in Montreal. To avoid paying Canadian taxes, accountants for CSL crafted a complex offshore tax structure. Millions of unpaid taxes were parked in a subsidiary in Barbados. Canada’s tax treaty with Barbados made it all the more easy for the rich to abuse Caribbean tax havens. As soon as Martin was in office, he sanctioned the use of tax havens while benefiting from them. Working class Canadians do not need to be reminded of the horrendous austerity policies he implemented as finance minister. Martin cut federal health transfers by 40 per cent as finance minister and as prime minister, refused to enforce the Canada Health Act and ban private care. Martin and Cameron are poster boys for the pedigreed rich that preach high mountain sermons on what is just and fair, while forcing working people to swallow the bitter pill of austerity.

Tax havens cost the federal and provincial governments up to $7.8 billion each year. The financial and banking industry accounts for more than half of offshored billions labelled as “investments”. In 2008, it was confirmed that Canada’s five largest banks had subsidiaries in tax havens to avoid paying over $16 billion in taxes between 1993 and 2007. These banks include Royal Bank, TD, Scotiabank and HSBC. These are some of the very banks that received billions in bailouts in the 2008 crisis and have confirmed CEO bank bonuses of $12.5 billion just last year. This is at the same time that many are laying off workers! The Canadian state has lent a hand in enabling tax loopholes and tax havens to legally function. Large multinational tax firms like KPMG and tax lawyers then determine where exactly these holes are to make tax evasion seem like tax planning.

Canada, a corporate playground

While the rhetoric of tightening up tax laws and regulations around tax havens has been the order of the day, Canada has become a tax haven itself. In fact, leaked documents from Mossack Fonseca also considered Canada a potential tax haven, marketing the country as a place to incorporate anonymous companies. Based on the idea of being a competitive market for investors, Canada has literally become a corporate playground.

The 2014 KPMG Competitive Alternatives Special Tax Report listed Canada as the most competitive business environment with the lowest corporate tax rate among the G7 countries. Corporate taxation is so low that Canada is competing with notorious tax havens like Switzerland and Luxembourg. Our corporate tax rate is lower than the United Kingdom, Mexico and the United States. In fact, even the infamous merger of Tim Hortons and Burger King was solely carried out to save money on corporate taxes!

Between 2007 and 2011, a majority of the major 60 firms that trade on the Toronto Stock Exchange paid very little in taxation. In 2014, 15 of the largest corporations in Canada were listed as using ‘creative’ accounting to pay unbelievably low taxes. These firms include Canadian Pacific Railway, Manitoba Telecom and Gildan Activewear.

The largest Canadian and foreign owned companies pay little to no tax, and the stated argument by the right wing is that a low tax environment will attract corporate investment that will stimulate job growth. Yet Statistics Canada reports that corporate cash reserves reached nearly $700 billion in 2015. The idea that low corporate tax rates translate into job growth is false. Businesses are hoarding cash and not investing because of the stagnant growth of the economy. The ruling elite are not a charitable lot. They do not invest in the economy to stimulate growth, but rather to make fast profits. Currently, Canada sits on a historically large cash reserve known as ‘dead money’ which is larger than Canada’s national debt. According to a 2014 report by the IMF, the size of corporate Canada’s dead money is the fastest growing among any of the G7 countries.

Under capitalism we hear the same old story: if there is even the hint of any poor person, or refugee, getting anything beyond their miserly allowance, then the full weight of the law comes down on their heads in the most punitive fashion. We are repeatedly told that there is no money and workers must endless cuts. But these scandals only confirm what workers already know, that the rich have no problem dining and dashing on their obligations, and it is the workers who get footed with the bill. These scandals are a clear indication that the state allows the ruling elite to cheat with impunity. The Canadian state is not a neutral body standing above society, but reflects the interest of the ruling class who use political lackeys as a way to protect their assets. It is a government of the rich, by the rich and for the rich. Capitalism needs a state and its legal system, courts, judges and armed bodies of men, in order to protect its profit system.

Expropriate the 1%

While Marxists are not against a system of progressive taxation, the slogan of taxing the rich does not go far enough. The question must be raised: who controls the economy? Will the revenue from a one or two percentage point increase in corporate tax be enough to fund initiatives such as universal child care, free education, affordable housing, expanded free transit and full employment? Increasing taxes to a level sufficient to provide these essential services merely results in capital flight. In addition, we have seen how the rich and powerful can easily scam the system so they do not pay these increased rates. This is not just a theoretical assertion; this has been proven time and time again through experience.

Taxing the rich still allows them to direct production and the machinery of the state. Can a state administered by and for the corporate elite be trusted to solve the problems of average working people? Will the capitalist state ever prosecute the capitalists? No. Merely taxing the rich will still allow the accumulation of private wealth for a minority at the expense of the majority. Limiting ourselves to this demand would be like asking a crook to give back only a small portion of what he stole from someone. We say that the wealth of society should be in the hands of the people who actually work to create that wealth: the working class. The billions of evaded tax dollars, bailouts, corporate welfare, the preferential tax code, lax environmental regulations, lax employment standards and workplace safety, plus simple cheating and stealing, more than compensates for the value of these corporations. We say expropriate the 1% that have ruined the economy. If the rich do not want to invest in new jobs, create free schools and housing units for all and pay their fair share, then let the real wealth creators do so. The ruling elite can take what they can in a suitcase and leave the industries for the workers to democratically manage. The bosses need us more than we need them!

Demonstrations across the world have shaken institutions and governments to their core. Tens of thousands marched in the capital of Iceland and demanded the resignation of the prime minister, who then did so. Promises of reforming the tax system cannot be carried out by political parties that are heavily tied to the banking and financial sector. We cannot control how the social wealth of society is being directed if we do not collectively own it. As long as the economy is controlled by a tiny elite minority, no amount of laws will fix the problem of tax havens and tax evasion. We cannot expect corporate thugs and political puppets to fight against taxation reforms when it is not in their class interest to do so. If the rich write the laws, then the system will always be rigged.

We need an economy in which production is not based on profit, but rather on the collective needs of society through democratic workers’ control and management. Under capitalism, banking and financial accounting secrecy will continue make headlines in the media whenever an email is leaked or a whistleblower comes forward. We require a democratically planned economy where production is rationally planned based on the needs of the majority. By nationalizing the major banks, corporations and industries, and administering them through the democratic control of workers, all of the socially produced wealth will return to building society, and not into a virtual office in the Cayman Islands or the Isle of Man. Billions of dollars siphoned off the labour of the working class and sitting idle can ensure every single working mother has adequate day care and housing; that youth have free education and job training; that the elderly are provided for in quality public facilities; and workers have decent wages and conditions. We say enough is enough! This is our wealth and we want to direct where it goes!