Canadian companies are stashing more money into offshore tax havens than ever, a study indicates.
Between 1990 and 2003, the amount of money Canadian corporations put into tax havens, mainly in the Caribbean, soared to $88-billion from $11-billion, according to a study by Statistics Canada.
Direct investments in these countries increased 18 per cent annually on average. That compared with an annual increase of 8 per cent for investments in the United States and 14 per cent annually for investments in other countries. Tax haven countries “accounted for more than one-fifth of all Canadian direct investment abroad in 2003, double the proportion 13 years earlier,” the study said. It added that of the $88-billion, $53-billion ended up in offshore banks.
The most popular tax havens were Barbados, Ireland, Bermuda, the Cayman Islands and the Bahamas.
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“This was the first time that we were measuring direct investment abroad in a subgroup of countries which we refer to as offshore financial centres,” said Fran�ois Lavoie, a balance of payments analyst at Statscan.
“The interesting findings were that the amount is important and increasing. [Offshore financial centres] represent now, in 2003, one-fifth of the direct investment abroad.”
Mr. Lavoie said the study did not look at motivations for the investments, but he said tax issues were the most likely reason. “We know that these types of countries are characterized by low or zero taxation and moderate to light financial regulation,” he said.
Canadian tax officials have raised concerns about the amount of money headed to tax havens. According to a document prepared in 2001, the Canada Revenue Agency estimated that individual Canadians invested $44.1-billion in tax haven countries. That compared with $4.5-billion in 1988.
The Internet has made it easier for individuals and businesses to set up banks and brokerage accounts in far-flung countries famous for their secrecy, said the document, titled “Tax Havens, An Evolving Taxation Issue.”
The paper noted that officials are concerned that the secrecy provisions in many countries make it difficult, if not impossible, to get information from a financial institution and collect taxes owing from Canadians.
A study last year by researchers at the University of Quebec said Canada’s major banks have used tax havens to avoid paying $10-billion in taxes since 1991. The study found that the banks had a total of 73 subsidiaries in tax haven countries such as Barbados and Cayman Islands.
For example, according to researchers, Bank of Nova Scotia reduced its tax bill in 2003 by $309-million to $784-million because of a “lower average tax rate applicable to subsidiaries and foreign branches.”
The Canadian Bankers Association has challenged the study, saying “the underlying premise is entirely unfounded and misleading.” The association added that there is nothing wrong with what the banks are doing.
Francis Wade, who runs Can-Offshore Services, a Belize-based company that specializes in offshore banking, said regulations in many countries have been tightened and he questioned Statscan’s figures.
“We read these statistics with a grain of salt,” Mr. Wade said. He added that most banks in the Caribbean have less than $20-million in total customer deposits and could not accommodate the sums indicated by the report.
The Statscan study also found that, between 1990 and 2003, foreign direct investment in the United States tripled to $160-billion, but rose much faster in other regions.
The United States accounted for 41 per cent of total foreign investment in 2003, compared with 60 per cent in 1990.
Offshore investment
The largest growth in direct Canadian investment in offshore financial centres has been in Barbados, Ireland, Bermuda, the Cayman Islands and the Bahamas. These five centres are now among the top 11 nations with the most Canadian assets.
$11-BILLION: CANADIAN ASSETS INVESTED IN OFFSHORE FINANCIAL CENTRES IN 1990
18%: ANNUAL RATE OF GROWTH IN CANADIAN DIRECT INVESTMENT OFFSHORE (1990-2003)
41%: U.S. SHARE OF CDN. DIRECT INVESTMENT IN 2003, DOWN FROM 61 in 1990.
$88-BILLION: CANADIAN ASSETS INVESTED IN OFFSHORE FINANCIAL CENTRES IN 2003
8%: ANNUAL RATE OF GROWTH IN CANADIAN DIRECT INVESTMENT IN THE U.S. (1990-2003)
$169-BILLION: AMOUNT OF CDN. DIRECT FOREIGN INVESTMENT IN FINANCIAL SECTOR ASSETS
Direct Canadian investment assets in offshore financial centres in 2003.
Country – $million – Rank
Barbados – $24,690 – 3
Ireland – 18,226 – 4
Bermuda – 10,845 – 6
Cayman Islands – 10,619 – 8
Bahamas – 8,802 – 11
Switzerland – 4,044 – 18
Singapore – 3,735 – 19
Hong Kong – 2,535 – 22
Malaysia – 716 – 32
Luxembourg – 683 – 33
British Virgin Is. – 307 – 45
Panama – 131 – 64
Netherlands – 107 – 69
Costa Rica – 94 – 74
Cyprus – 92 – 76
Offshore centres ranked, but where data is confidential under the Statistics Act.
Channel Islands
Belize
Mauritius
Saint Lucia
Antigua/Barbuda
Malta
Aruba
Seychelles
Bahrain
Macau
By Paul Waldie, Globe and Mail
Source: Statistics Canada
