The Paradise Papers, documents showing confidential offshore investments, are creating controversy in Canada.
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The paradise papers are the latest document leaked to reveal how thousands of Canadians keep money offshore and how this problem is growing now. Other leaks have shown how the wealthy use tax havens to avoid paying taxes. What this one shows is the extent to which Canada has become a major player in this game.
So what are tax havens and why are they a particular problem for Canada?
Here's a quick run-through on how they help people avoid paying tax. If you want to move your money abroad you have to have someone set up a company or a trust, pay someone to act as the director or
trustee in that country, though they're usually a little more than a name on a paper, then you can start to move your money into an account. And while your money is offshore it can grow; and there are ways to put off having to pay any taxes on it here in Canada; and it's all perfectly legal.
There's a lot of places you can choose to do this: there are more than 60 tax havens around the world including Switzerland, Liechtenstein, Guernsey, and a lot of tiny islands in the Caribbean. Because in addition to sandy beaches, places like Bermuda the Cayman Islands, British Virgin Islands, they all have Very, very attractive tax deals with Canada.
Canada doesn't officially track the amount of money that’s parked offshore. But there's an estimated two hundred and fifty billion dollars in Canadian money and tax havens and that's just the money that's there legally. And all that money is costing Canadian taxpayers a lot. A conservative estimate suggests that Canada loses about 6 billion dollars in tax revenue every year because of tax havens. Just to give you an idea that's enough for 200,000 new childcare spaces, 650 safe drinking water systems on First Nations reserves, 18 Super Hornet fighter jets.
To be clear, that's money that could be coming to Canada in taxes if it wasn't so easy to avoid paying those taxes by keeping it offshore. But it's not always done legally because these tax havens have very strict secrecy laws. Those laws can be used for illicit ends - which is why they can be used to launder money - hide money from say your spouse or conceal illegal activities - because it can be hard to tell what money's yours and where it came from.
So why hasn’t Canada cracked down on the rules that allow this to happen? A good question. Some politicians have tried to make the rules tougher - but instead of cracking down, Canada's made it in some ways easier to avoid tax this way. Since 2009 Ottawa signed deals with two dozen tax havens including the Cayman Islands, Liechtenstein, and the Isle of Man. These deals are designed to compel those countries to share more information about Canadians who have accounts and money there; so less secrecy; but in exchange they actually make it easier for Canadian companies to set up there, and bring home the profits tax-free.
And you're probably not surprised to know: since those deals were first put in place the use of tax havens has exploded.