Investigation of shell companies and tax havens to be restarted | Unions Yeah!

Investigation of shell companies and tax havens to be restarted

Ottawa (30 April 2021) — This week the House of Commons Standing Committee on Finance (FINA) agreed to a motion from NDP Finance Critic Peter Julian to do a follow-up study of how shell companies in tax havens are used for tax avoidance and to avoid legal proceedings. This effectively restarts a 2016 inquiry by FINA into shell companies in tax havens.

Shell companies in tax haven linked to fraud

The decision by FINA comes after media reports that people who were victims of a fraudulent investment scheme that transferred over $500 million out of Canada are calling for the inquiry to be restarted. It recently emerged that four shell companies in the Isle of Man, a notorious tax haven located between Britain and Ireland, were used to hide at least some of the funds obtained through this scheme.

Their call points to the similarities in the methods used for tax dodging and money laundering.

Questions about links to KPMG tax dodging scheme

The use of shell companies in the Isle of Man to avoid taxes in Canada received a lot of attention after it was revealed that one of the big four accounting firms, KPMG, was setting up shell companies in the Isle of Man to help wealthy Canadians avoid paying taxes. CBC received a leaked email suggesting KPMG was also involved in setting up the shell companies used to hide money obtained through the fraudulent investment scheme which seems credit to a tax expert who saw the message, but KPMG are denying their involvement.

KPMG tax dodging scheme exposed how spineless governments have been on tax havens

The response of both Conservative and Liberal governments to KPMG’s scheme to allow wealthy individuals to use shell companies in the Isle of Man to dodge taxes has exposed how spineless successive federal governments have been when it comes to cracking down on tax havens. While low- and middle-income earners who fail to report income face stiff penalties and the possibility of a criminal record, a secret deal was made with a wealthy family involved in the KPMG scheme and KPMG has not be prosecuted. 

FINA even went as far as gagging experts on tax fairness appearing before it at was supposed to be a hearing into the KPMG scheme.

Beneficial ownership registry announcement holds out some hope

The decision of FINA to restart the inquiry into the damage done by shell companies in tax havens isn’t the only encouraging news for people concerned about tax havens. In the 2021 federal budget, the government committed to bring in a publicly accessible database of the beneficial owners of companies

Because shell companies in Canada also play an important role in tax dodging and hiding money obtained through crime, this database would be an important step forward – if the federal government goes ahead with it. Since every provincial and territory would have to sign on this measure, it is unlikely to be implemented before the next federal election. Based on the weak record of federal governments when it comes to cracking down on tax havens, there are concerns that this could be the type of progressive measure that gets promised before elections and then abandoned if a party wins a majority.