Canadian Businesses Pull Funds from Tax Havens

Numbers released by Statistics Canada reveal that Canadian businesses are increasingly moving to pull their funds from tax havens. The move marks the end of a five-year period in which Canadian businesses had billions stashed in the 10 most popular tax havens, which are defined as low-tax or no-tax countries. According to official Canadian government statistics detailing Canada’s foreign direct investment, Canadian businesses reduced their holdings in these top 10 tax havens from $272 billion in 2015 to roughly $261 billion at the end of last year. That translates to roughly an $11 billion reduction.

What’s the reason for the sudden shift in funds out of tax havens? Analysts speculate that the Panama Papers scandal of last year may have been a major factor in prompting Canadian businesses to pull their money out of tax havens, perhaps deterring businesses from using tax havens to minimize their tax liabilities. The Panama Papers scandal drew increased public attention to the use of tax havens, and companies are now under increasing scrutiny from the public to ensure they aren’t exploiting offshore structures to evade taxes.

“This could be a sign that global efforts to curb corporate profit shifting to tax havens may be paying off,” said Dennis Howlett, the executive director of Canadians for Tax Fairness, a Canadian group working to lobby the government to close tax loopholes that allow companies to exploit tax havens to reduce the amount of taxes they have to pay. “We know that public attention to this has affected calculation of risk, so companies are being more cautious now because of the potential for a public relations backlash.”

However, there is disagreement regarding why the amount has dropped. Some analysts warn that the Panama Papers isn’t the only thing influencing business decisions to repatriate funds previously stashed abroad. For example, the Irish government recently pushed through reforms that will make it harder for foreign businesses to stash cash in the country to avoid paying taxes on it. Moreover, others have argued that the drop isn’t really as significant as it might appear to be, given that the Canadian dollar rose sharply against the U.S. dollar and most foreign investment is made in U.S. dollars. The perceived reduction can be attributed to this currency fluctuation in part. Therefore, there is not a guarantee that the reduction will continue.

In conclusion, it is still too early to tell whether this recent withdrawal of money from tax havens by Canadian businesses is just a fluke or part of a longer-term trend.

Sources:

http://www.thespec.com/news-story/7263967-canadian-businesses-pull-billions-out-of-tax-havens/

a group that lobbies for the closure of loopholes that encourage the use of offshore tax havens.