Tax Loopholes Impact on Canadian Individuals' and Small Business's Behaviour

Abstract

Companies are applying different strategies to lower the amount of taxes they remit to the government, but the government seems to be getting lured to their intentions. A policy that came into effect in 2009 allowed Canada to sign agreements related to information exchange on tax with jurisdictions like the Cayman Islands, Isle of Man and Bermuda. The agreement had been intended to allow the government to flush out all individuals hiding their monies in offshore accounts. However, the agreement ended up creating a loophole for big companies to create subsidiaries within such jurisdictions and move their profits home without any form of tax levied on them. US multinationals are always obligated to pay tax wherever they get the international profits. In Canada however, the Tax Information Exchange Agreement shows that it is possible to declare profit generated in a tax haven, where there is very little or no tax, and take it back to the country without the company having to pay any more tax. As such tax treaties have for years encouraged a number of businesses not to operate in Barbados, where the rate of tax is between 1 and 2.5 percent, tax information exchange agreements are believed to have opened up a new chance for legal tax evasion in the zero-tax countries such as Panama, the Bahamas and Bermuda. A number of large corporations on the Stock Exchange of Toronto are now have some presence in tax havens and are applying the Canadian treaty to reduce the amount of tax they pay to the government back at home. MorganThomas reports that one company named Gildan reduced the amount of tax it paid to the government by more than 90 percent just in 2015.