The New York Times’ Adam Davidson used a Canadian company to setup an offshore bank account in Belize.
The New York Times’ Adam Davidson used a Canadian company to setup an offshore bank account in Belize.
One often-overlooked lesson of the financial crisis is that shenanigans don’t happen in the absence of regulation; they happen when regulations are exceedingly complex and involve confusing, overlapping regulatory authorities. Collateralized debt obligations and credit-default swaps were designed to squeeze through a labyrinth of laws, rules and taxes. And most of these toxic assets were formed in offshore jurisdictions, far from prying eyes and stricter reporting requirements. When Lehman Brothers collapsed, it took regulators and creditors more than a year to find out that the company comprised nearly 3,000 legal entities spread across 50 countries.
My colleagues at NPR’s “Planet Money” recently polled several economists of all political stripes and found that while they disagreed on the right level of taxation, they generally agreed that the overly complex taxation of rich people and corporations was disastrous. It all but guarantees that those people and companies will spend an inordinate amount of money figuring out how to game the system rather than come up with new ideas that improve the economy. Economists generally agree that the best tax system would be simple and strict, offering little incentive to lobby for loopholes.
The Finance Minister pursued the issue several years ago, Paul Dewar campaigned on it during the NDP leadership race and the NDP pushed the finance committee earlier this year to study tax havens. Last year, the CBC used an NDP campaign pledge to consider the problem.
In 2007, the Harper government launched its “Anti-Tax Haven Initiative,” designed to crack down on “aggressive international tax planning and tax evasion.” The CRA boasted that it audited 1,251 cases and assessed $1.026 billion in federal tax in 2009-10. Sounds impressive. But there’s a big difference between tax assessed and tax collected, and the CRA doesn’t tell us how much it actually collected from these audits.
Michelle Gallant, who teaches law at the University of Manitoba, doubts that the CRA collected very much. She points out that most delinquent taxpayers wind up negotiating a settlement with the taxman for considerably less than the amount assessed, and that the negotiations and the appeal process can drag on for years. So the NDP plan to collect a billion dollars next year, and $3.2 billion by year four looks like a bit of wishful accounting.
A recent international report estimated the existence of trillions of dollars in global funds stashed in offshore accounts.