Tory crackdown on tax evasion lost in a fog

Posted on September 23, 2014 in Governance Debates – Opinion/Commentary – After promising to flush out companies that stash their cash in offshore tax havens, the Harper government has lost its enthusiasm for ruffling corporate feathers.
Sep 23 2014.   By: Carol Goar, Star Columnist

There has been scarcely a peep out of Ottawa since last winter’s promise to crack down on companies that stash their cash in offshore tax havens.

The silence was particularly acute last week, when the OECD (Organization of Economic Cooperation and Development) came out with a seven-point action plan to prevent multinational corporations from using low-tax or no-tax jurisdictions to hide their assets. Canada was one of the countries that called loudest for a co-ordinated international approach. But when the Paris-based agency delivered its blueprint, there was no acknowledgement from Canada’s finance minister, revenue minister or any other member of the federal cabinet.

Catching tax cheaters was a Conservative priority when the late Jim Flaherty delivered his 10th — and final — budget last February. He affirmed the government’s determination to “combat international tax evasion and aggressive tax avoidance.” That followed his 2013 to change the Income Tax Act to flush out businesses that hid their assets abroad. In 2012 he closed several tax loopholes that allowed Canadian companies to set up shell companies and create partnerships in offshore tax havens.

But the government’s ardour seems to have cooled lately.

The OECD’s Sept. 16 report — identifying actions countries can take right now to stem the outflow of taxable income — should have been welcomed in Ottawa. Canada can’t tackle this issue alone. It is a global problem; one that will grow as technology becomes more sophisticated and persist until nations take collective action.

But harmonizing tax international standards has become politically awkward for Prime Minister Stephen Harper.

Under his government, Canada has reduced its corporate income tax rate to the lowest level in the G7. Harper boasts about this achievement, claiming it brings in foreign investment, spurs growth and creates jobs. He will undoubtedly use that sales pitch in next fall’s election.

Aligning Canada’s corporate taxes with those of other countries would undercut its advantage as investment magnet. Participating in an internationally transparent system of corporate taxation, as the OECD proposes, would allow voters to see who is paying for Ottawa’s deficit-elimination drive.

There is a second complication. The tax department is quietly reducing its efforts to hunt down multinationals that use overseas tax havens. Canada Revenue Agency (CRA) hasn’t announced any wind-down but its “corporate business plan” for the years 2014-2017 shows a decrease in the share of its budget allocated to “offshore compliance.”

According to the Professional Institute of the Public Service of Canada, which represents the 7,000 auditors employed by CRA, the government has begun disbanding many of the international teams it set up 18 months ago. Fifty senior tax auditors who led overseas enforcement teams have been told their jobs will be eliminated. The department is shifting its staff to accommodate Ottawa’s new flavour-of-the-month: cracking down on charities that engage in “political activities.”

“These changes defy logic,” says union president Debi Daviau. They also defy the OECD’s call for nations around the world to expand their capacity to combat the use of offshore tax havens.

There is a final difficulty. It is next to impossible to find out how much money is leaking out of the country. CRA refuses to provide any estimate of the gap between the taxes it is owed and the amount it collects. Nor will it divulge how much it has recovered in the crackdown. Former parliamentary budget officer Kevin Page tried to get the figures. The government refused to hand them over. His successor, Jean-Denis Fréchette, has fared no better.

There is one factor working in Harper’s favour. The public is largely oblivious to his tax crackdown. So are the two opposition parties. The only politician tracking this issue is Percy Downe, a senator from Prince Edward Island. Since 2012, he has churned out 27 press releases, letters to the editor, texts of public speeches and copies of letters he sent to the revenue ministry since 2012. In one case, the minister issued a rebuttal which received no publicity outside Charlottetown.

Don’t expect the Tories to change their stance to match their underwhelming performance. Promising to penalize globe-straddling corporations that cheat the taxman is good politics — until voters realize it is an empty slogan.

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