The issue of tax havens is inherently international in scope. As a result, the government can use tax agreements to fight tax avoidance schemes.
Unfortunately, tax agreements haven't been used for that purpose. On the contrary, they have facilitated the outflow of Canadian money to offshore financial centres, and have done very little to break the damaging secrecy laws of these countries.
Tax agreements were first signed by Canada in 1980 and to date, Canada has signed 92 of them. Ten more are currently being negotiated or are waiting for ratification. Their alleged objective is to avoid double taxation of corporate profits or personal income.
For example, if Canada has a tax rate of 26 per cent on corporate profits, and a different country where a company does business has a 14 per cent tax rate, the tax agreement ensured that the profits earned in that foreign country wouldn't be taxed at a total of 40 per cent. It is first taxed in the country it was earned, and a credit is applied on Canadian taxes upon repatriation of these profits.
This would make financial sense... if tax agreements were used this way.
But instead of simply deducting the taxes paid in another country upon repatriation of the profits, Canada fully exonerates the repatriated profits, regardless of the tax rate of the foreign country. (more...)