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Minister of Finance Bill Morneau smiles during an interview November 5, 2015 in Ottawa. (Dave Chan for The Globe and Mail)
Minister of Finance Bill Morneau smiles during an interview November 5, 2015 in Ottawa. (Dave Chan for The Globe and Mail)

Canada to join G20 effort to limit ‘profit shifting’ by multinationals Add to ...

Canada is expected to join other G20 countries to sign off on an international deal in Turkey aimed at cracking down on “profit shifting” by large multinational companies seeking to reduce their tax bills.

The changes, which are also aimed at exposing the corrupt use of tax havens to launder money, would force companies to report billions of dollars in profits that have previously been shifted to other countries – and could ultimately help Canada’s new Liberal government pay for its ambitious four-year spending plan.

In an interview with The Globe and Mail on Friday, Finance Minister Bill Morneau noted that while the Liberal Party platform promised more tax-enforcement cash for the Canada Revenue Agency, his party has not estimated the extra revenue such domestic and international efforts may bring.

“We’re going to work on this issue and other issues and through that work we would expect that we’ll ensure that Canadians and Canadian businesses both large and small will pay their appropriate rate of tax,” said Mr. Morneau, who is travelling with Prime Minister Justin Trudeau to the G20 summit in Antalya, Turkey, that starts Sunday. “I can’t speculate yet on what may or may not be available without going much deeper into the files.”

Canada’s new Finance Minister said he and Mr. Trudeau plan to use the summit to develop relationships and promote their government’s economic plan.

“The main issue for us in these meetings is to present Canada on a global stage as a positive and helpful intervenor in global issues,” he said. “We’ll be spending our time talking about our platform and our investments in infrastructure and our fiscal stimulus approach. We expect that that will be positively received by our international partners and we’re looking forward to doing that.”

Tracking down lost tax revenue will be important to the new government in light of a Parliamentary Budget Office report showing federal finances are on track for a string of deficits even before Liberal promises are considered. New Treasury Board President Scott Brison accused the previous Conservative government this week of “having left the cupboard fairly bare.”

The potential for new government revenue is substantial. The Antalya summit is expected to mark the culmination of two years of work by the G20 and the Organization for Economic Co-operation and Development on a project called Base Erosion and Profit Shifting. The OECD has called this one of the most fundamental changes to international tax rules in almost a century and estimated conservatively that governments are losing out on between $100-billion (U.S.) and $240-billion a year.

The goal of the G20 changes is to have companies pay corporate taxes in the countries where the profits are generated.

A November report by the Tax Justice Network, Oxfam, the Global Alliance for Tax Justice and Public Services International ranked Canada third in the G20 in terms of countries with the largest missing profits. The report roughly estimated that at least $23-billion in profits that should have been declared in Canada were shifted elsewhere.

The report said most of these profits are being reported in low-tax jurisdictions including the Netherlands, Luxembourg, Ireland, Bermuda and Switzerland. The OECD has already warned Ireland that the reforms will be negative for that country.

The issue of cracking down on domestic and international “tax evaders” is specifically mentioned in the Prime Minister’s mandate letter to National Revenue Minister Diane Lebouthillier, which was made public Friday.

For a new Liberal government that is already facing questions as to whether it has the room to deliver on its campaign spending promises in light of a sluggish economy, the issue presents an opportunity.

“It wouldn’t take too much to actually raise a billion dollars or more from an aggressive effort at dealing with tax havens,” said Dennis Howlett, executive director of Canadians for Tax Fairness. Mr. Howlett and Oxfam met with Canada’s G20 sherpa Vincent Rigby this month to discuss how the issue could be addressed at the summit.

“They’re going to be desperate for the money and they don’t want to necessarily raise taxes a whole lot more, so what other options do they have?” Mr. Howlett said.

Under the Conservatives, Ottawa has taken several steps in recent years that could start to deliver results in terms of identifying missing tax revenue.

As of January, 2015, all electronic fund transfers of $10,000 or more must be reported to the CRA by banks and other financial institutions. The agency has also created an Offshore Compliance Division with a staff of 70 public servants. The agency has also increased the amount of information it collects on Canadian taxpayers with foreign property holdings.

Canada’s G20 team met with stakeholders to discuss potential further action the country might take and comments from the new Foreign Affairs Minister, Stéphane Dion, signal that more will be done.

In a recent interview with French-language CBC, Mr. Dion was asked to name his next foreign policy priority after climate change.

“I’d like to address the global economy,” he said. “It seems like each time we address the problem, like the circulation of funds, there are businesses using tax havens and they are doing things in our countries, but they don’t pay tax. It’s an enormous problem. Whenever [it comes up], I’m told, ‘Well, that’s up to the international level to resolve.’ I’d like to see what Canada could do.”

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