OECD report shines a light on how the wealthy dodge tax rules

On the list of countries operating CBI/RBI schemes, that the OECD feels have the potential to be used for tax dodging, are 2 tax havens that are popular with wealthy Canadians and large Canadian companies. These are Barbados and Panama.

Ottawa (19 Oct. 2018) — New information from the Organization for Economic Co-operation and Development (OECD) on schemes that allow wealthy individuals to buy citizenship or the right to live in tax havens shines, a light on one of the ways the rich get around the rules. The information deals with what are called Citizenship by Investment or Residence by Investment (CBI/RBI) schemes in countries that are considered to be tax havens.

Under these schemes, wealthy individuals can become citizens or residents of countries that are tax havens, even if they spend little or no time in those countries. They then use their citizenship or resident status to avoid taxes on assets held in tax havens.

CBI/RBI schemes help tax haven users get around rules 

The reason that wealthy individuals want citizenship or resident status in tax havens is to get around rules intended to make tax dodging harder. In 2014, the Common Reporting Standard (CRS) was adopted by the OECD. Under the CRS, governments are required to collect information on accounts held or controlled by non-residents and pass it onto the governments where the account holders live. This is intended to make it harder for wealthy individuals and tax havens to hide money in tax havens.

Many of the tax havens used by wealthy Canadians have signed onto the CRS, so information on accounts they hold in tax havens should be passed onto the Canadian government. However, if wealthy individuals living in Canada are able to use citizenship or residency documents obtained through CBI/RBI schemes to claim they are resident in tax havens the reporting won’t happen.

Tax havens used by Canadians on the list of countries with high risk schemes

On the list of countries operating CBI/RBI schemes, that the OECD feels have the potential to be used for tax dodging, are 2 tax havens that are popular with wealthy Canadians and large Canadian companies. These are Barbados and Panama.

Barbados is the single most popular tax haven for Canadians. Over $48 billion of Canadian money is “invested” there. To put that figure in perspective, that’s 4 times as much as Canadians have invested in Germany, one of the world’s largest economies.

Tax haven use has skyrocketed in the last 30 years

Canadians for Tax Fairness estimated that the value of the investments that Canadian corporations and wealthy Canadians hold in tax havens has increased from $6.6 billion to over $299 billion in the last 30 years. The increasing use of tax havens is helping large corporations and the wealthy avoid paying their share of taxes.

Canada can crack down on tax havens – if the federal government wants to

As part of its report on CBI/RBI schemes, OECD is putting rules in place to deal with the use of these schemes by the wealthy to dodge taxes. But for these rules to work they have to be enforced. And weak enforcement is one of the main reasons Canada has a tax haven problem.

A recent report by the Professional Institute of the Public Service (PIPSC) found that staffing levels at the Canada Revenue Agency (CRA) are still lower than they were after the drastic cuts made by the Harper Conservatives in 2012. The fact staffing levels have still not recovered from the Harper era cuts makes it clear that the much publicized increases in funding for the CRA over the last couple of years were far less significant than the federal government wanted us to believe. It also helps explain why Canada has lagged behind other countries in following up on leaks of information on some of the individuals and corporations using tax havens.

What the PISC report shows is that if the federal government really wants to crack down on tax haven, funding for the CRA needs to be significantly increased and more needs to be done to ensure that funding is used to deal with tax dodging by large corporations and the wealthy. Because of the amount of money Canada is losing due to tax havens, any funding increase will pay for itself many times over. All that’s needed is a federal government willing to act.