Fighting tax havens has never been more urgent

In addition to the current health crisis, we will soon be facing a major crisis in public finances. Maintaining the social safety net that has been so invaluable these past few months will be no small feat. Our governments must not under any circumstances let the wealthiest among us duck their tax obligations. There’s a tool available to make the governments’ task easier.

As part of public consultations in 2018 aimed at making the actual ownership of Canadian corporations more transparent, the anti-tax-haven collective Échec aux paradis fiscaux submitted a brief calling on the federal government to create a registry of beneficial owners. But what exactly does that mean?

Using shell companies or dummy corporations is a well-known strategy for avoiding taxes. Under complex structures of ownership, it becomes very difficult to know who, in the end, actually owns a business. Right now, it is far too easy to conceal the true owners of a company by creating other companies that serve as intermediaries.

Let’s take the example of a neighbourhood bar whose name in the Régistraire des entreprises du Québec is XXXX-9999 Québec Inc. If you look it up in the Régistraire’s listings, you’ll learn that the director of the company is the bar manager, Georges Tremblay, and that its major shareholder is another numbered company: XXXX-8888 Québec Inc. So who actually owns the bar? Of course, you can search for information on XXXX-8888 Québec Inc., but it too may be owned by another company. And since the Régistraire only provides the name of the largest shareholder, you won’t be able to learn the name of any other owner. Worse yet, if the company belongs to a company that is registered outside of Canada, your search will stop right there.

Obviously, this makes it difficult for governments to collect taxes, but it also makes it difficult for law enforcement agencies to find out if organized crime is behind a given business (one that grows cannabis, for instance). It also makes it very difficult for journalists, civil society groups, or citizens to expose wrongdoing.

The registry proposed by Échec aux paradis fiscaux is intended to help solve the problem of private companies’ lack of transparency.

The registry would be public and would force companies to reveal who their ultimate owner is.

To make this registry an effective tool in fighting tax avoidance, Échec aux paradis fiscaux recommends that:

anyone who owns at least 10% of a company be legally required to declare this fact
the registry be accessible to the public free of charge so that the media, researchers and whistleblowers can access information
the registry cover both corporations and trusts
failure to meet disclosure obligations lead to exemplary and deterrent penalties.

Recovering lost tax revenue

Will this registry enable governments to recover a portion of the $8 billion lost every year to tax havens?

Tax evasion, tax avoidance and money laundering can be fought more effectively when we know who benefits from a company’s activity. A public registry would also increase the population’s trust by forcing corporations and other legal entities to be more transparent.

The governments of Québec and Canada have shown some degree of openness to setting up this kind of registry. Last December, Échec aux paradis fiscaux submitted a brief to the Québec government arguing for the creation of a registry of beneficial owners. When the government presented its budget on March 10 (just a few days before confinement began), it announced that it intends to set up such a public registry and make it obligatory for corporations and trusts. Échec aux paradis fiscaux welcomed this initiative. We hope the Québec government will stay the course when the economy picks up again.

However, the registry alone won’t enable us to recover all the money, or even a substantial portion of it! Other measures have to be set in place. We’ll be returning to this topic.

It’s crucial that Échec aux paradis fiscaux keep up its efforts to end the scandalous reliance on tax havens by wealthy individuals and multinationals in Québec and Canada. As an active member of this collective, the APTS wholeheartedly intends to continue this fight.

by Élisabeth Circé-Côté | illustration by Luc Melanson |june 18, 2020