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05/28/2013

Tax crusader coaxes Canada to address murky practise of tax transfers

Barrick

A May 23, 2013 photo of mining trucks parked at the Barrick Gold Corp.'s Pascua-Lama project in northern Chile. (AP/Jorge Saenz)

John Christensen is a Canadian mining company's worst nightmare.

As head of the U.K.-based Tax Justice Network, Christensen has spent years travelling the world, sound the alarm about the murky but legal practise of tax transfers, where companies minimize their tax exposure by shifting profits from cash-strapped developing nations to subsidiaries in tax havens.

Christensen, a former economic adviser to Jersey, a well-known tax haven, and now a critic of secretive havens, has been campaigning for change for a decade, telling The London Guardian in 2004 that its actions would lead Jersey to become "an overpriced ghetto for the very wealthy."

Today, Christensen has many reasons for optimism -- except when he looks at what's happening in Canada.

"Public finances are crumbling across the world," Christensen said in a phone interview from Ottawa. "Not only in the obvious cases like Greece and Portugal, but in some of the world's leading nations, austerity programs are failing, deficits are widening, and there's a recognigition that the inability to tax capital is a significant part of this problem."

Over the past years, Christensen said, it's like a switch has gone off in the governments of the developed world. 

An amendment to the new Dodd Frank Act in the U.S. will take effect as soon as next year and force any company listed on the U.S. stock exchange to publicly report any and all payments made overseas. That amendment should impact about 100 Canadian-based oil and mining companies.

The European Union has passed similar legislation.

A private member's bill in Canada, C-300, would have introduced similar requirements here but failed to win enough votes. Mining companies coaxed mayors and other politicians in towns where Canadian mines are based to pressure local MPs to vote against the bill, somehow convincing them it would mean local job losses, Canadian MP John McKay said in an interview.

Nevertheless, Christensen said there will be no escape for Canadian firms, particularly after the G20 countries in April agreed to support an effort to stop international tax evasion by urging governments to systematically share bank data.

That effort is moving forward in spite of Canada's resistance, Christensen said.

"Canada needs to catch up here," he said. "The other laggard on this within the G8 is Russia. That says it all. Canada had promoted keeping as the standard a system called tax information agreements, where information was offered on request."

Automatic information exchanges, however, should dramatically speed up the amount of time it takes to pursue investigations.

There is a flurry of examples of large multinationals under scrutiny for its tax-shifting prowess. Earlier this month, for instance, a U.S. senate subcommittee accused Apple of using subsidiaries in Ireland to minimize its taxes. One affiliate, Apple Sales International (ASI), reported sales income of $74 billion over four years but paid hardly any tax. In 2011, ASI had pre-tax earnings of $22 billion but paid $10 million in tax, a rate of 0.05 per cent.

Google has been accused of employing similar tactics.

Christensen says mining companies are among the most aggressive at shifting taxable revenue and figures Canada's tepid approach to tax reform "reflects a powerful banking and mining lobby.

Rick Westhead is a foreign affairs writer at the Star. He was based in India as the Star’s South Asia bureau chief from 2008 until 2011 and reports on international aid and development. Follow him on Twitter @rwesthead

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