Justin Trudeau’s position on COVID-19 bailouts for tax-haven companies gets murkier

“Since 2015, we have made significant investments in the CRA to fight against tax avoidance and tax evasion. That is something that we have taken very seriously as a country and there will always be strong consequences for anyone who avoids to pay their fair share of taxes. At the same time, we’ve been investing to ensure that Canadians get the supports they need regardless of whether they work for a small or large company,” Trudeau said.

It was a different tone than the one he had struck Tuesday, during the House of Commons’ first virtual sitting, when Trudeau responded to a question from the Bloc Québécois much more unequivocally.

“We will continue to ensure that those who need help will get it, but those who evade or avoid tax will not receive aid,” he said in French.

The Prime Minister’s Office referred questions about the policy to Revenue Minister Diane Lebouthillier.

Janick Cormier, a spokesperson for Lebouthillier said in an email that Canada Revenue Agency (CRA) computer systems are being used to flag applications for the Canada Emergency Wage Subsidy (CEWS) with a view to “stopping claims from taxpayers associated with tax evasion, fraud or with indicators of fraud.”

Cormier didn’t address whether companies that engage in legal tax avoidance would be affected.

“Right now, the Liberal government is not committing to it. They’re absolutely equivocating,” said Singh. “If they were going to do it, then they would just say, ‘Yes.’”

Calling the legal use of tax havens by Canadian corporations a “long-standing problem,” Singh urged the government to use this rare opportunity to incentivize companies to relocate their money to Canada.

“The problem is that tax havens are legal. So what’s our recourse? If companies are asking for help, they should have to contribute.”

“Let’s be clear about tax havens. They are expressly used for no other reason than to avoid paying taxes. It’s not like we’re talking about a company that expands into another jurisdiction to grow their revenue …They’re not creating more employment. They’re not taking their product to new markets. They’re just hiding their money,” he said. “Companies are saying: ‘We need public support.’ Well, the public also needs your support, so contribute your fair share.”

Most large publicly-traded companies in Canada use tax minimization strategies. A 2017 investigation by the Star and Corporate Knights magazine found Canada’s largest corporations avoided paying more than $10 billion in tax each year — mostly by using tax havens.

Richard LeBlanc, a professor of corporate governance at York University, said Canada should have learned its lesson from 2008, when bailouts went to companies that then closed down and moved their operations to lower-cost jurisdictions.

“It’s time to put conditions on bailouts,” said Leblanc. “Tax avoidance is now considered a proper condition for financial aid, along with stock buybacks and caps on executive compensation.”

“Of course it’s legal to engage in tax avoidance in an aggressive way, but you are not entitled to a bailout,” he said. Stock “buybacks and dividends are also legal. But you can’t just look at what is legal, you have to look at what it right.”

The government should take advantage of the leverage it has right now, said LeBlanc.

“The Americans are getting it right. They have conditions on their bailout. We should follow suit. Otherwise you can assume that taxpayers’ money will go to further tax avoidance.”

Last week, France became the third European country after Denmark and Poland, to commit to excluding companies that use offshore tax havens from receiving public bailout funds.

“If a company has its tax headquarters in a tax haven, I want to say with great force, it will not be able to benefit from state financial aid,” French finance minister Bruno Le Maire said on local radio.

There are too many unanswered questions about how the government would exclude companies from receiving bailout funds, said Molly Luu, a tax lawyer with Miller Thomson. She believes it can’t be done by adding questions at the application phase, which would risk holding up much needed aid.

“If you put in a lengthy application process, that would suffocate the rapid roll out of these programs, which are intended to benefit employees,” Luu said. “This means it would probably occur at the back end, by way of CRA audits later on.”

“This would give the government more time to determine exactly what criteria it is using to exclude companies. Is it all aggressive tax avoidance, or just the use of tax havens? And which tax havens are we talking about?”

“Details are sparse,” she said. “We need a little bit more.”