AVOIDING THE TAXMAN
The tax regimes of most countries are an ugly swamp of regulations — from which people of all income levels are apt to seek respite. It’s human nature to try to hang on to your own earnings.
Rich people also like to keep their money, and unlike the rest of us, can afford experts to help. Many practise what’s called tax avoidance. It’s not tax evasion. It’s legal.
But you wouldn’t easily understand the distinction based on the massive leak of confidential information about offshore tax havens known as the “Panama Papers,” which are now in the hands of the International Consortium of Investigative Journalists. The data include 11.5 million documents on about 200,000 offshore companies. These firms are based in tax havens such as Barbados or the British Virgin Islands.
The identities of people associated with the offshore accounts have sparked fury. Iceland’s prime minister was forced to step down over his past links to an offshore company, and Britain’s David Cameron has stumbled over his father’s Panama-based offshore trust.
With a second wave of information now available that contains more names, the Canada Revenue Agency promises to investigate 45 Canadians and identify further audits. The government has already pledged $444 million to help the CRA do its job better.
Two points. First, the agency is not great at sussing out tax cheats. It recently told Maclean’s, in response to questions about Canadian accounts in Liechtenstein, divulged in 2007, and in Switzerland, divulged in 2009, that no charges had been laid yet.
Second, there can be legitimate reasons (as well as illegitimate, to be sure) to set up an offshore account, including making it easier to do business outside Canada. The journalists’ consortium knows this. Before you can search the database now available through the Toronto Star and CBC, you’ll encounter the following caution:
“There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly.”
No? The impression created by the leak is that greedy people are gaming the rest of us, and if it’s not illegal, it’s certainly immoral. In a country where we boast of raising taxes on the “wealthiest one per cent,” and where talk of income inequality is built on the premise that someone is cheating, we tend to assume a conspiracy of evildoers.
That is far from clear, however. The vast majority of people using tax avoidance schemes, here or abroad, are doing what the rules allow. Don’t like it? Tighten the law. Don’t look for scapegoats.