Bombardier among companies using legal tax havens at expense of home country
MONTREAL – The problem is not that Bombardier Inc. played a complex shell game since at least 2010 by refinancing and redirecting US$500 million of its financing activities to Luxembourg, a notorious tax haven.
It’s that it does so legally — and is hurting its home country despite being one of the most heavily taxpayer-subsidized Canadian companies, a leading finance expert said Thursday.
Ken Lester, adjunct professor of finance at McGill University’s Desautels Faculty of Management, said in an interview that “this is a social thing we have to resolve.”
An investigation by Washington-based International Consortium of Investigative Journalists disclosed recently that Bombardier restructured financing activities in a series of highly complicated transactions involving 11 of its subsidiaries in eight countries.
Bombardier spokesperson Isabelle Rondeau said by email that “Bombardier’s worldwide corporate structure abides by all applicable laws, including tax laws.” The company would not answer precise questions, she added.
The move involves playing off the tax rates of various countries against each other to come to the lowest taxable rate possible — possibly even no taxes. It isn’t clear how much the Montreal-based aircraft and rail-equipment manufacturer saved by moving these operations offshore.
But that’s besides the point anyway, said Mr. Lester. The point is that governments are losing massive tax revenues from big companies that move assets and operations to tax havens like Luxembourg while benefiting from their home bases in other ways.
In Bombardier’s case, “it has a history from Day One. As soon as it went into the aircraft and rail business, the [federal] government stepped in and has been subsidizing it ever since.”
“Then all of Canada says ‘Hey, we’ve given you hundreds of millions of dollars over the years. The whole reason we gave it to you was to stay here and provide jobs and help with the tax revenues’.”
Over decades, Bombardier executives have answered questions about taxpayers footing a hefty part of their operations by saying that the jobs they provide here contribute handsomely to Canada’s tax revenues over a long period.
“Luxembourg has the reputation of attracting business and in Europeans’ minds, it’s just one big tax shelter,” said Mr. Lester. “The only reason you go there is you’re screwing your home country, your own government.”
“In Europe it’s considered pejorative — in bad taste, because you’re hurting your own country, whereas in North America it’s smart because you’ve found a way to [not pay taxes].”
It’s a burning issue in Europe and has taken on greater dimensions recently in the United States after Apple, Google, Amazon and Starbucks, among many others, were discovered to escape corporate taxes by engaging in various — legal — mitigating tax-avoidance measures, including “inversion.”
Bombardier is hardly the only company escaping Ottawa’s fiscal grasp on the rest of Canadians.
An investigation by Canadian Business Magazine this year found that many others were freely availing themselves of off-shore tax havens like Luxembourg, Bermuda and the Cayman Islands and various other legal tax-avoidance schemes.
First Capital Realty Inc., for instance, a major retail space management firm across Canada, has made profits of $1.791 billion in the past 10 years. During that decade, the firm has paid $22 million in taxes.
Montreal’s Gildan Activewear Inc., a highly profitable garment-maker with a subsidiary in Barbados, paid an average tax rate of 5.5% over the last decade. It achieved this via a tax treaty Ottawa negotiated with Barbados in 1980 that, in essence, allows multinationals like Gildan to repatriate profits tax free. Of the $1.54 billion in net profits the company has earned in 10 years, it has paid merely $85 million in taxes.
“Canadian Pacific Railway paid an average effective cash tax rate of just 1.8% over the past decade,” the magazine noted. “Manitoba Telecom paid 4.1% … And First Capital Realty has gone for years without paying any cash taxes at all.”
Many Canadians’ taxable income rate is over 40%.