Canada is currently considering an amendment to the Income Tax Act that would require Canadians to report all income earned through offshore shell companies, including through companies registered to do business in Canada.
Why is the move coming now?
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The U.S. government is lobbying for the measure, and Canadian officials tell the Globe and Mail that they want to follow suit. The amendment proposes that Canadians reveal exactly who they have in offshore entities, along with how much they earn and how they’re paying tax.
What is the point of taxing capital gains taxes?
Previously, investors would calculate their annual capital gains based on a specific balance sheet. Now it would be more inclusive, applying them to each transaction through every account and every stage in the investment process. The Canadian move is part of a global trend to bring more transparency to offshore tax havens.
Why haven’t other countries disclosed how much tax they bring in from these accounts?
Countries like Canada account for roughly one-third of foreign tax evasion. Norway, Netherlands, Belgium, Greece, Slovakia, Denmark, Sweden, the UK and Norway alone bring in an estimated $50 billion a year in tax from offshore accounts, according to Tax Justice Network. Given these massive amounts of revenue, it’s quite common for governments to be slow to institute new taxes, the organization says. Canada, though, intends to bring in its own independent estimates, without funding from any other government, before it enacts its amendment.
What is Pandora Papers?
Anonymity for anonymous offshore entities is a highly controversial practice, but there’s a huge market for hidden income — and there’s evidence that secrecy is a key tool for money laundering. While for many of these entities the addresses of real owners aren’t public, an extensive database, called The Panama Papers, was leaked to investigative journalism organizations. The PN Papers revealed names of some of the wealthiest people in the world — and the names of companies that they use, where they’re based and how much they earn.
Who’s included in this database?
The leak set off a public outcry, and several countries changed their laws after the leak. But many of the remaining offshore entities identified in the Panama Papers, like Malayan Banking Corporation, are still unaccounted for. It’s also clear from the database that many offshore entities can store a large amount of money without anyone knowing.
What about special inquiries?
President Barack Obama issued a special subpoena to the Justice Department to investigate offshore accounts in 2009, but the Justice Department never recovered a single account from a subject of that investigation. The outcome of the inquiry was described as a “humiliation” by a press conference held at the time.
Why haven’t these top banks been caught yet?
Prosecutors can request a list of names and addresses from clients’ banks, but once an individual falls out of the company’s administration — and the alleged transactions can be linked to the bank account in question — the bank will often refuse to turn over the information. Since banks do not share client information with prosecutors without a court order, the banks fear violating existing privacy laws.
Who should care about this issue?
The CBC has more on how experts are working to understand the mania for confidentiality.
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