Why are Tax Haven Users Getting Govt Contracts?


The federal government is giving lucrative contracts to suppliers who avoid paying their share of taxes by using tax havens. This includes individuals and organizations named in the Panama Papers. Those findings, and recommended changes to the current rules, are contained in a report by Canadians for Tax Fairness and the labour organization Unite Here.

The organizations have sent that report to the Minister of Public Works and Government Services (PWGS) urging changes in the procurement rules.  Currently, those rules do not penalize businesses that avoid taxes by moving money to offshore tax havens.

  “The behaviour at PWGS is not consistent with the finance minister and revenue ministers’ stated goal to halt tax dodging,” says Dennis Howlett, executive director of Canadians for Tax Fairness. “The federal cabinet needs to act consistently and effectively on this issue. Right now, it looks like the left hand doesn’t know what the right hand is doing.”

Federal departments and agencies spend $16 billion annually on goods and services.  One of the most outrageous examples of government condoning tax havens is that the Canada Revenue Agency, the supposed enforcer of Canada’s new anti-tax haven regime, rents office buildings from a multinational that uses tax havens extensively.  

“Companies who want to bid on government contracts should publicly disclose beneficial ownership information and publicly declare where they do business and where they pay tax,” says Howlett.  “If they want taxpayer dollars, they must choose to leave tax havens behind.” 

The report recommends that the federal government’s Integrity Framework require corporations to report if they have subsidiaries or affiliates in tax havens.  Currently, conviction for income and excise tax evasion is a possible condition for ineligibility. But years of cutbacks at the Canada Revenue Agency resulted in less capacity to investigate and fewer charges. In addition, many corporate tax evasion cases are settled out of court.

“If government fails to champion an ethical system, tax dodgers will get the message that shifting profits offshore is okay,” says Howlett. “Corporate Canada needs to know that offshore tactics are a black mark against them in the bidding process. And taxpayers need to know that the system is fair.”

There is at least $261 Billion of Canadian corporate money in tax havens. Most of it is untaxed – contributing to a tax gap of an estimated $8Billion from corporate tax avoidance. 

Offshore subsidiaries and activities have helped many of Canada’s largest companies achieve an effective corporate tax rate of less than 10 per cent. That’s well below what is considered a globally competitive 27 per cent.