BEYOND PARADISE, THE REAL TAX GAP.

As the sun sets over the week- long Paradise Papers media blitz, the sky clouded with 13- million pages of illegally-obtained privacy- breaching documents filled with implied wrongdoing, the world is left with a big question: What the hell was that all about?

Well, for one thing, we learn that it is quite acceptable to breach the privacy of Canadians and citizens of other countries, provided those citizens are rich. Canada’s Privacy Act is a rigid piece of legislation that attempts to prevent companies, governments and individuals from disclosing private information. When Equifax Canada recently reported a cyberattack that compromised credit card and other information about 100,000 Canadians, the Office of the Privacy Commissioner swung into action: “The investigation is a priority for our office given the sensitivity of the personal information that Equifax holds.”

No such concern has emerged in the wake of the Paradise Papers. No doubt the lack of privacy concern is due to a loophole in the Privacy Act which allows for public disclosure of “personal information where, in the opinion of the head of the institution, the public interest in disclosure clearly outweighs any invasion of privacy that could result from the disclosure.” Apparently private information about corporations and the one per cent is by definition in the public interest and the media has nothing to worry about when it picks up illegally cyber- attacked documents and publishes them.

The other thing we’ve learned from the Paradise Papers is that fake scandal can be manufactured by manipulating concepts and information to give the misleading impressions of political and/or bureaucratic malfeasance/ incompetence.

One such fake scandal coming out of the Paradise Papers is the CBC/ Toronto Star claim that Canada, unlike the U. S. and the U.K., does not disclose the full scale of the national “tax gap.” The document leak allegedly reveals that it is “no secret that many wealthy Canadians are squirrelling away fortunes offshore to avoid — or even evade — taxes,” says the CBC. But both the CBC and the Star say the real big “secret” is how much money offshore activity “is costing fellow Canadians and the national treasury each year.”

The lost tax revenue is known as the “tax gap,” a concept that has captured the imaginations of many as some kind of unimpeachable indicator of the massive offshore avoidance/evasion that takes place annually. The claim is also made that the Canadian Revenue Agency has been lax in failing to create an official version of the tax gap.

Leading this attack is P. E. I. Senator Percy Downe, who said it is “shameful” that the CRA has failed to produce a tax gap report. The agency, he told the CBC/ Toronto Star team, is “the most incompetent department… in the government of Canada.” Good quotes for a story, but not quite up to the standards needed for accuracy.

Tax gap reports and studies are numerous across many countries, all of them based on dodgy methods. Even the U. S. Internal Revenue Agency describes its tax gap report methods as being “inherently challenging” and requiring alternative methods, assumptions, and data sources. “There is no single approach for estimating all the components of the tax gap. Each approach is subject to nonsampling error; the component estimates that are based on samples are further subject to sampling error. The uncertainty of the estimates is not readily captured by standard errors that typically accompany estimates based on sample data. For that reason, standard errors, confidence intervals, and statistical comparisons across years are not reported.”

The latest U. S. tax gap ( for 2010) was estimated at US$ 452- billion. The U. K. tax gap number ( 2015-16) is £ 34 billion. The tax gap fun, though, is in the details where it turns out that the biggest tax dodgers of all are not the rich but the other 99 per cent. The U. K attributes 50 per cent of its tax gap (£ 15.5 billion) to small and medium enterprises that are avoiding taxes. Billions are avoided by average people who “moonlight” at second jobs or exchange cash for services that is unreported.

The U.K tax gap also includes assorted British avoidance of VAT and other taxes on commodities such as alcohol, tobacco and oil. Failure to collect corporate taxes accounts for less than 10 per cent of the total U.K. tax gap.

Canada’s tax gap has been variously estimated. One report put the number at $47 billion. But only $6 billion to $8 billion has been attributed to offshore tax activities. If legal, such activity would not be part of any tax gap. Tax gaps are said to exist when governments do not collect the tax revenues they should collect under existing tax laws. If the offshore activity is within the law, it is not part of the tax gap.

So how big is Canada’s tax gap and who’s not paying their fair share? The Conference Board of Canada assembled some guesstimates, including a Statistics Canada $ 8.9 billion gap through the underground economy in which cash is king. The board’s report came up with its $47 billion estimate by applying the IRS methodology, which even the IRS admits is far from being accurate.

As for the CRA, it is now being pressured into coming up with tax gap numbers, despite its valid arguments that doing so is filled with near impossible challenges. The agency’s next report on the project is due next summer. The final tax gap numbers, however speculative, are likely to show that the offshore rich tax avoidance/evasions are a small part of the great tax- dodging efforts of the 99 per cent.