On September 10, the CBC revealed details of what the Canada Revenue Agency describes as an offshore tax haven “sham” created and orchestrated by one of this country’s most respected tax accounting and auditing firms.
According to court documents, KPMG in 1999 developed a “product” designed to “target” those with a net worth of $10 million or more. Using shell companies in the Isle of Man, a known tax haven, KPMG offered investors “‘confidentiality,’ protection from creditors and the ability to receive money ‘free of tax.’” According to the CBC, KPMG took “a 15 per cent cut of the taxes dodged.”
The CBC identified one family — a British Columbia father and his two adult sons — who “gifted” $26 million to an offshore shell company in 2002-03, then got re-gifted at least $6 million in benefits from their hidden stash between 2002 and 2011. Those benefits were never reported on tax returns. The family paid just over $3,000 in taxes while receiving a $5,000 federal tax credit for renovating a “posh home” in Victoria.
The CBC says this case, which is under appeal, may be just the tip of this particular tax avoidance iceberg. KPMG — ironically “best known for helping the federal government crack down on public misspending” — is fighting a court order demanding a list of wealthy clients who took advantage of its “product.”
This story follows in the wake of the much larger global fallout from a 2013 leak of 2.5 million documents from offshore tax havens obtained by an international investigative journalists’ organization and shared with news organizations like the CBC. The CBC identified more than 550 wealthy Canadians whose financial and personal details have been linked to companies and trusts in various tax haven countries.
Statistics Canada numbers show show well-to-do Canadians stashed $199 billion in tax havens last year, more that $70 billion in Barbados alone. Barbados?! That’s five times more than Canadians invested in such tax havens in 2001. Which was itself 10 times more than they’d hidden offshore in 1988.
Clearly, not paying taxes has become a growth industry among wealthy Canadians.
And since the rich avoided paying nearly $8 billion in taxes to hard-pressed federal and provincial governments, the rest of us had to pony up more while governments cut back on everything from education to aid to seniors.
You would imagine that this dollars-and-sense issue, which affects all of us, would have groups like, well, say the Canadian Taxpayers Federation and the Canadian Federation of Independent Business in high holy dudgeon.
You would imagine in vain.
I searched the website of the Canadian Taxpayers Federation — which bills itself as a “not-for-profit citizen’s group dedicated to lower taxes, less waste and accountable government” — and found just one reference to “tax haven.” That was a 1999 commentary dismissing the very idea Canada might be a cheap tax haven for globetrotting business. Uh…
A Google search turned up a more relevant 2003 Globe and Mail article quoting a CTF spokesperson defending tax scoffers: “People say, ‘Why would I pay an extra $10,000 [in taxes] when the government is going to [waste it]?’” Exactly. Why let the government waste it on public services when rich folks can waste it on themselves?
The Canadian Federation of Independent Business, which bills itself as “the big voice for small businesses” and claims to have been fighting the good “fight for tax fairness” for over 40 years, somehow is voiceless when it comes to tax havens.
In fact, my Google search showed that when the QMI News Agency decided to find out how easy it was to set up an offshore tax haven in Belize in 2013, they quickly located a middleman company, “a member of the Canadian Federation of Independent Business,” who aided and abetted the process.
Given that there’s $8 billion in tax revenue at stake in these tax havens, and given that the CTF and the CFIB claim to be concerned about tax fairness and lower taxes, you have to ask yourself why are they so silent?
Or perhaps you already know the answer.
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First published in the November 2015 issue of Atlantic Business Magazine.
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My comments clearly struck a nerve.
Aaron Wudrick, federal director of the Canadian Taxpayers Federation in Ottawa, tweeted “you could have simply called us for direct comment. So why didn’t you?” This misses the point of the column, which was that there is little evidence on the public record that this organization, which claims to speak for taxpayers’ interests, has said or done much about wealthy tax cheats.
Mr. Wudrick also notes he was quoted responding to a accounting blogger’s post on the subject. He was. He “said that a criminal investigation should be pursued if the CRA allegations involving KPMG and the Isle of Man involve any legal wrongdoing. ‘If we were to assume the allegations are true, this is clearly very troubling.’” (This is indeed encouraging, though it would be more encouraging if the CTF would take it a step further. Even if there isn’t any “legal wrongdoing,” shouldn’t the CTF be campaigning to close the loopholes that allow the wealthy to evade taxes in this way.)
The reason that comment wasn’t noted in the original column is that the blog post was from October 2015 and my deadline was September 13. Hence, it didn’t show up in my search. That also explains why I did not include CTF’s Kevin Lacey’s comments about the KPMG story on Rick Howe’s 95.7 call-in show September 14.
Dan Kelly, a spokesperson for the CFIB, also took to Twitter to complain: “Huh? Not our core issue, but we’ve commented on this many times. Biz using offshore tax havens is unfair & shouldn’t be permitted.” He later pointed out the CFIB had a representative on the former government’s federal minister’s advisory group on the “underground economy,” a group that meets twice a year “to provide advice, input and feedback on UE strategies and activities.”
I am happy to add that to the record, but it doesn’t change my essential argument.
Groups that claim to worry about taxpayers interests and the tax burden should be far more proactive in fighting wealthy tax cheats than they have been. That they haven’t only highlights what I see as their right-wing anti-government agenda.
After reading the CBC follow-up reports on the KPMG scandal today, I happened to do the same thing you did back in September. I checked to see if the CTF had any coverage of the issue and also checked the Canadians for Tax Fairness website. The latter was all over the issue, as I expected they would be. Over five months after you did your original check, the CTF still does not appear to have a single word on the scandal. About 20 years ago, whcn I was a little wet behind the ears and not so well informed, I used to support the CTF. Now that I am older, and perhaps a little wiser, I see that the CTF (and the CFIB) are literally an extension of the Conservative Party. Perhaps when you consider that Jason Kenney is a former president of the CTF, the connection has always been obvious. The three organizations are committed to defunding government to the point where they are no longer capable of providing the services and safety net that Canadians (and even conservative supporters) need and have come to expect. They feel that these services are better provided by private, for-profit, organizations, owned by the wealthy individuals that are keen to avoid paying taxes. There is alot of back scratching going on amongst these three groups. Hopefully, the Liberals do the right thing and go after KPMG and their clients with guns blazing. If not, their honeymoon will officially be over. Excellent article. Keep up the good fight.
I wonder if a review of the membership profile of the group would speak to who’s interests they serve. Do they advocate for fair taxes for all or less taxation of the wealthiest?