$88B flees Canada: Taxes blamed as investment in offshore havens soars
March 15, 2005
OTTAWA - Canadian direct investment in tax havens and other offshore financial centres has soared eight-fold since 1990 to $88-billion in 2003, says a report that has renewed calls for lower taxes to spur investment in this country.
The Statistics Canada report, released yesterday, rekindled opposition demands for a crackdown on Canadian firms' use of offshore financial centres to avoid paying taxes in Canada.
"From 1990 to 2003, Canadian enterprises invested substantial and growing amounts in countries known as 'Offshore Financial Centres,' many of them in the Caribbean," StatsCan said. "These centres include countries that are often referred to as 'tax havens,' as well as those which have important financial sectors, such as Switzerland, but also Ireland."
The largest increases went into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland, the five countries being among the 11 nations with the most Canadian assets.
John Williamson, federal director of the Canadian Taxpayers Federation, said yesterday the inclusion of Ireland among the top five should send Ottawa a message.
"That is a country that Canada could learn so much from. They pursued a policy of lower taxes to stimulate economic growth and have succeeded to the point that not only is their economy strong, but it is attracting Canadian capital," he said.
Mr. Williamson noted the Caribbean countries have long attracted foreign investment, because banking is a cornerstone of their economies, but Ireland has a goods-and-services economy similar to Canada's. "[Ireland] is the one that jumps out on that list.... There's certainly a lesson for the Canadian government in terms of their tax-and-spend policies."
Conservative finance critic Monte Solberg said Canada should follow Ireland's lead and use low taxes to attract investment.
"That's something we should strive for," Mr. Solberg said.
Jack Mintz, president and chief executive of the C.D. Howe Institute, said the StatsCan study underscores the reality that "we're not as attractive enough as a country for foreign investment, and that's a concern."
Mr. Mintz said it is not suprising Canadian investment in tax havens has jumped in recent years, given that Canada has one of the highest corporate tax rates among industrialized countries.
"We have a significant issue that we have to deal with on the tax side to make Canada more attractive," he said. "We've actually created a policy disadvantage for investment in Canada."
The report also brought charges that Ottawa must follow through on promises to close tax loopholes that allow such high levels of Canadian investment in such countries as Barbados.
Judy Wasylycia-Leis, the NDP finance critic, said the Liberal government "has to start taking seriously its commitment to shut down tax havens, because they result in higher taxes for Canadians."
However, Finance Minister Ralph Goodale recently said that a "consensus among all countries" would be needed to shoot down tax havens.
The International Monetary Fund defines offshore financial centres as jurisdictions that have a large number of foreign-controlled financial institutions where most transactions are initiated abroad; have assets and liabilities that are out of proportion to its economy and low or zero taxation; and have loose financial regulations and banking secrecy.
Francois Lavoie, author of the Statistics Canada study, said it is based on investments reported by firms but added he "cannot comment if these are legitimate investments or not."
They mostly are investments in financial assets but, depending on how the investment is structured, that could include investments in ships or buildings, he said.
Canada Steamship Lines, formerly owned by Prime Minister Paul Martin, who has now transferred ownership to his sons, has registered ships offshore.
An IMF background paper notes that international companies route activities through low- tax offshore OFCs to minimize their total tax bill ... moving onshore profits to low-tax regimes.
More than one-fifth of all Canadian direct investment abroad in 2003, or more than 20 cents of every dollar, went into offshore financial centres, double the proportion 13 years earlier, the report said.
In contrast, the share of direct Canadian investment going to the United States, Canada's main economic partner, shrunk over that time, it said. Direct investment mainly serves to finance the creation of new enterprises or the acquisition of existing ones.
http://www.canada.com/national/nationalpost/news/story.html?id=804c1a07-715e-4033-8336-6755cfb8ef71
March 15, 2005
OTTAWA - Canadian direct investment in tax havens and other offshore financial centres has soared eight-fold since 1990 to $88-billion in 2003, says a report that has renewed calls for lower taxes to spur investment in this country.
The Statistics Canada report, released yesterday, rekindled opposition demands for a crackdown on Canadian firms' use of offshore financial centres to avoid paying taxes in Canada.
"From 1990 to 2003, Canadian enterprises invested substantial and growing amounts in countries known as 'Offshore Financial Centres,' many of them in the Caribbean," StatsCan said. "These centres include countries that are often referred to as 'tax havens,' as well as those which have important financial sectors, such as Switzerland, but also Ireland."
The largest increases went into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland, the five countries being among the 11 nations with the most Canadian assets.
John Williamson, federal director of the Canadian Taxpayers Federation, said yesterday the inclusion of Ireland among the top five should send Ottawa a message.
"That is a country that Canada could learn so much from. They pursued a policy of lower taxes to stimulate economic growth and have succeeded to the point that not only is their economy strong, but it is attracting Canadian capital," he said.
Mr. Williamson noted the Caribbean countries have long attracted foreign investment, because banking is a cornerstone of their economies, but Ireland has a goods-and-services economy similar to Canada's. "[Ireland] is the one that jumps out on that list.... There's certainly a lesson for the Canadian government in terms of their tax-and-spend policies."
Conservative finance critic Monte Solberg said Canada should follow Ireland's lead and use low taxes to attract investment.
"That's something we should strive for," Mr. Solberg said.
Jack Mintz, president and chief executive of the C.D. Howe Institute, said the StatsCan study underscores the reality that "we're not as attractive enough as a country for foreign investment, and that's a concern."
Mr. Mintz said it is not suprising Canadian investment in tax havens has jumped in recent years, given that Canada has one of the highest corporate tax rates among industrialized countries.
"We have a significant issue that we have to deal with on the tax side to make Canada more attractive," he said. "We've actually created a policy disadvantage for investment in Canada."
The report also brought charges that Ottawa must follow through on promises to close tax loopholes that allow such high levels of Canadian investment in such countries as Barbados.
Judy Wasylycia-Leis, the NDP finance critic, said the Liberal government "has to start taking seriously its commitment to shut down tax havens, because they result in higher taxes for Canadians."
However, Finance Minister Ralph Goodale recently said that a "consensus among all countries" would be needed to shoot down tax havens.
The International Monetary Fund defines offshore financial centres as jurisdictions that have a large number of foreign-controlled financial institutions where most transactions are initiated abroad; have assets and liabilities that are out of proportion to its economy and low or zero taxation; and have loose financial regulations and banking secrecy.
Francois Lavoie, author of the Statistics Canada study, said it is based on investments reported by firms but added he "cannot comment if these are legitimate investments or not."
They mostly are investments in financial assets but, depending on how the investment is structured, that could include investments in ships or buildings, he said.
Canada Steamship Lines, formerly owned by Prime Minister Paul Martin, who has now transferred ownership to his sons, has registered ships offshore.
An IMF background paper notes that international companies route activities through low- tax offshore OFCs to minimize their total tax bill ... moving onshore profits to low-tax regimes.
More than one-fifth of all Canadian direct investment abroad in 2003, or more than 20 cents of every dollar, went into offshore financial centres, double the proportion 13 years earlier, the report said.
In contrast, the share of direct Canadian investment going to the United States, Canada's main economic partner, shrunk over that time, it said. Direct investment mainly serves to finance the creation of new enterprises or the acquisition of existing ones.
http://www.canada.com/national/nationalpost/news/story.html?id=804c1a07-715e-4033-8336-6755cfb8ef71