Tax Havens: Canadian Dynamics of a Global Issue

• In Event: Global Rules and Illicit Economic Flows

Abstract

Scholars and journalists have documented the existence of a well-developed global system of “offshore” finance for many decades. Recent research by the International Monetary Fund (IMF) indicates that nearly 40% of global foreign direct investment (FDI) is “phantom” money passing through shell corporations in haven jurisdictions. This huge sum reflects the centrality of tax havens in the international financial system. Much scholarly conversation focuses on the prospects of successful action by international organizations such as the OECD to regulate international tax policy. However, national governments in developed countries have many tools at their disposal to take unilateral action to address tax evasion and avoidance.
In his landmark 2014 study, Alain Deneault richly documented the role played by Canadian financial and political elites in turning several Caribbean countries into tax havens. Identifying a broad umbrella of feasible policy and legal steps to limit the offshoring of Canadian wealth, he argued that the public should view tax avoidance not as a technical or judicial matter, but as a political issue.
This paper has two goals. The first is to evaluate the Canadian government’s record on tax avoidance in the past ten years. Through a review of federal budgets, reports from parliamentary officers and committees, and other official documents, I document a mitigated effort by successive governments to improve enforcement at the Canada Revenue Agency (CRA). This basically marginal effort reflects a prevailing attitude that places faith in the OECD’s Base Erosion and Profit-Shifting (BEPS) process, rejecting bolder unilateral action.
The second goal is to analyze the trajectory of tax avoidance as a domestic political issue. Following Panitch and Gindin (2016), I approach national politics as the space where social conflict ultimately takes place, even in an era of globalization. I draw on reports from key lobby groups and civil society organizations, interviews with activists, parliamentary committee evidence, and the Debates of the House of Commons, to argue that tax avoidance has become increasingly politicized in the past ten years. In the face of financial sector lobbying and close cultural ties between the Liberal Party and corporate Canada, the emergence of a small tax justice movement has achieved modest gains.

Author

• Bruce McKenna, Université du Québec à Montréal