tax avoidance | Corporate Knights

Report exposes brazen tax avoidance by world’s largest meatpacker

Grey Moran — Tue, 09 Sep 2025 15:47:14 +0000

JBS, the world’s largest meat company, is poised for an explosive level of growth in the coming years. The multinational meat giant, headquartered in Brazil, recently made its highly contested debut on the New York Stock Exchange. The move is anticipated to expand the company’s access to capital markets and enable its continued global expansion – but this comes at a steep cost to climate.

Beef is already the largest driver of food-related emissions, and climate models suggest there is no way to stave off the worst effects of global warming without cutting back on beef consumption. Yet JBS’s newfound access to capital is all but guaranteed to enable the meat giant to keep expanding.

This sweeping expansion is also a deeply troubling development for the many advocates monitoring the company’s long history of environmental destruction, human rights abuses and animal cruelty.

JBS’s global dominance has also been fuelled by another strategy: tax avoidance. As the $77.2 billion mega-corporation (all figures in U.S. dollars) comes to control an even larger share of the global market, tax experts tell Sentient the move is unlikely to be followed by a proportional hike in JBS’s taxes, especially in the countries that account for a large percent of its sales, like the United States.

They’re doing all of these things in Luxembourg that allow them to shift their profits there, while in practice – in a real economic sense – there doesn’t seem to be much there.
—Vincent Kiezebrink, Centre for Research on Multinational Corporations

Like many multinational companies, JBS has an intricate corporate structure that enables the company to strategically avoid paying taxes by shifting money to more favourable jurisdictions, known as tax havens because of their sparse corporate tax obligations. The strategy shields JBS from paying taxes in the countries where it conducts the bulk of its business – in terms of both its sales and meat production facilities – to countries removed from its principal operations.

Environmental advocates argue that these corporate tax havens hinder climate progress, enabling JBS and many of the world’s largest polluters to avoid paying taxes that could be used to fund investment in climate solutions.

A blatant style of tax avoidance

It’s estimated that JBS avoided paying up to $442 million in taxes between 2019 and 2022, by taking advantage of a network of 17 subsidiaries in Luxembourg, according to research conducted by SOMO, the Centre for Research on Multinational Corporations. These subsidiaries operate as shell companies, without any clear principal business, beyond facilitating the flow of money from subsidiaries in other countries to JBS’s parent company.

In Luxembourg, for instance, most of JBS’s companies have no employees. SOMO found that 16 out of 17 of these Luxembourg-based companies do not employ anyone, while one company had a total of five employees. Yet this network of subsidiaries owns $58 billion of assets in the United States, Canada, Australia and Europe, according to SOMO.

This nesting structure of subsidiaries enables revenue from JBS’s primary business operations (its slaughterhouses, meatpacking plants, beef and poultry farms, etc.) to be taxed in Luxembourg, a known tax haven with tax exemptions for holding companies.

“It’s very classic, brazen tax avoidance,” Vincent Kiezebrink, who specializes in corporate research at the Netherlands-based SOMO, tells Sentient. “There’s nothing there. It’s just on paper,” he says, referring to the Luxembourg subsidiaries. “They’re doing all of these things in Luxembourg that allow them to shift their profits there, while in practice – in a real economic sense – there doesn’t seem to be much there.”

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While corporate tax avoidance is very widespread, baked into the business model of nearly all multinational companies, Kiezebrink has observed that JBS’s very blatant style of tax avoidance is becoming less commonly practised – as this era of so-called corporate social responsibility has led more corporations to adopt, in the very least, a front of ethical governance. “Companies do make more and more of an effort to hide what they’re up to when they’re aggressively avoiding taxes,” he says. Yet at least when it comes to its tax avoidance strategy, Kiezebrink says, “JBS doesn’t seem to have made much of an effort to hide.”

JBS has attempted to depict itself as a good corporate actor in other ways, however, including by committing to net-zero greenhouse gas emissions, a pledge that Reuters found the company has since backtracked on and claimed was never a “promise.” JBS also boasts of its Hometown Strong initiative, which has committed $100 million so far to “the communities where we live in and work” by funding local projects across the United States and Canada. Yet this investment in the “hometown” communities where JBS operates is undermined by its corporate structure, which enables JBS to dodge its tax obligations in these same communities.

“When multinationals like JBS are allowed to take advantage of tax loopholes from international tax treaties and avoid paying their fair share of tax, the cost of running a country is still the same, but that burden then falls on everyday taxpayers,” says Tim Vasudeva, the head of private- and public-sector finance at World Animal Protection, and an author of another recent report that builds upon SOMO’s research on JBS’s tax avoidance. According to Vasudeva, this also leads a disproportionate amount of the tax burden to fall on small businesses, which don’t have the same tax-avoidance network of subsidiaries at their disposal as corporate multinationals like JBS.

The artificial flow of capital

Both of the recent reports, produced by SOMO and World Animal Protection, also reveal JBS’s extensive use of intercompany dividends and loans as mechanisms to transfer pre-taxed wealth to its Luxembourg network, before moving it to the parent company, the overarching owner of JBS’s tiers of subsidiaries. The end effect of this is to lower JBS’s overall tax burden and maximize the company’s net profits.

Researchers at SOMO found that JBS’s Luxembourg-based subsidiaries received up to $22 billion in loans in 2022 from its other subsidiaries in low-tax jurisdictions, specifically Malta and Delaware. JBS paid effectively nothing in interest on these loans, facilitating a massive transfer of money to Luxembourg. According to SOMO’s report, “the weighted averages of the annual interest rates on these loans were 0.4% and 0.65%.”

“There is no reason to lend money to Luxembourg from Malta at 0% interest rate and then lend it to other entities, other than tax purposes,” Vasudeva says. He calls this transfer of money the “artificial flow” of capital – volleying money back and forth for the sole purpose of taking advantage of tax codes in differing jurisdictions.

After receiving these very low-interest loans, the Luxembourg companies continue this artificial flow of money by issuing loans to JBS’s primary operations in the United States, the United Kingdom, Ireland, Australia, Brazil and Mexico at much higher interest rates (an average of 5%). By way of pre-tax deductions from interest payments, JBS is then able to lower its tax base in the United States and other jurisdictions where it primarily operates. At the same time, this enables the flow of its profits to Luxembourg.

The researchers also traced JBS’s use of intercompany dividends, another mechanism enabling the flow of pre-taxed money to its Luxembourg network. “Dividend flows to and from subsidiary companies are one of the main ways for multinational companies to redistribute profits generated by their operations worldwide,” the report produced by World Animal Protection states. Multinational corporations are often structured in order to avoid withholding taxes levied on dividends in certain jurisdictions like the United States, while moving the flow of dividends to tax havens.

“Dividends that flow out of the operating company jurisdictions – like Australia, U.S., U.K, etc. — are treated as non-taxable in Luxembourg,” Vasudeva says.

Based on an analysis of financial statements, the World Animal Protection report found that “$11 billion in intercompany dividends flowed through JBS’s group of Luxembourg subsidiary companies,” allowing JBS to avoid paying U.S. withholding tax on dividends. In total, the report found that JBS’s Luxembourg companies paid just half a million in taxes between 2019 and 2022, while collecting $2.8 billion in pre-taxed profits.

Nikki Richardson, JBS USA’s head of corporate communications, did not respond to Sentient’s request for comment about these tax avoidance strategies.

The need for international tax reform

JBS’s unrestricted expansion has become a roadblock to achieving global climate goals, yet it gets little public attention.

The SOMO report notes how there is a “broad scientific consensus” on the need for dietary change – eating less meat and more plants – to limit rising global temperatures. But as the report points out, this important detail is often obfuscated by the meat industry, including through extensive lobbying campaigns that weaken the industry’s climate obligations.

JBS’s expansion serves to hinder progress on human- and animal-rights issues too. The company has a long, checkered history of paving its expansion through unethical business practices, including illegal deforestation and destruction of Indigenous land, documented incidents of modern slavery in the company’s supply chain, working conditions linked to deaths during COVID-19 and other serious injuries in its meatpacking plants, and a well-documented track record of egregious animal welfare violations – incidents that JBS has largely been able to maintain as a business practice by paying government fines and settlement fees.

One potential solution Kiezebrink would like to see implemented is an international system of unitary taxation – also known as formulary apportionment – applied to multinational corporations like JBS. The proposed system would ensure that corporations are taxed in the same jurisdictions where they primarily conduct business. Under international tax law now, subsidiaries of multinationals are each taxed separately, which “provides companies with a lot of leeway to shift profits,” he says.

The proposed system would tax multinational companies as a single entity, dividing the taxes per jurisdiction based on a formula that incorporates factors like the sales, labour or assets in a particular location. The goal is to capture “the genuine economic substance of what they do and where they do it,” as Sol Picciotto wrote in a report published by the Tax Justice Network. “This would ensure that they make a fair contribution as corporate citizens towards the costs of the public services provided by the states where they do business.”

There is already an active effort to reform the current international tax system. The United Nations is negotiating a framework around international taxation, partially aimed at closing regulatory gaps that enable tax havens.

Tax haven reform would also help countries achieve their UN Sustainable Development goals, taking urgent action to combat climate change and hunger that has the potential to rein in corporate tax avoidance if enough countries participate.

Yet in February, the Trump administration withdrew from this negotiation process – even though cracking down on tax havens would likely benefit the United States by preventing corporations from shifting profits produced in the United States to international jurisdictions.

With JBS now trading on the New York Stock Exchange, Vasudeva argues that this too enables JBS to use money that otherwise would be taxed to grow “the factory farming model, which is bad for animals, bad for the environment, bad for biodiversity and bad for their workers.”

This article was originally published by Sentient. It has been edited to conform with Corporate Knights style.

Grey Moran is an award-winning investigative journalist based in Durham, North Carolina.

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It’s time we see paying taxes as a sustainability issue

Karie Davis-Nozemack — Wed, 03 Jul 2019 20:54:50 +0000

Although the United States already adopted sweeping tax reforms under the Trump administration, Congress is in the midst of planning further tax cuts. People are beginning to ask if these and previous tax cuts are sustainable. What does it mean for taxes to be sustainable? When most people hear the term “sustainability,” they think of things like electric cars and recycling. Not taxes.

Nearly all of us consider ourselves to be ethical people, but few of us like paying taxes because it requires us to part with our own money. Rather than resolve the tension between affirming our own ethicality and loss aversion, we resist seeing taxes as an issue of ethics or sustainability.

The problem isn’t just a personal one, it’s permeated corporate culture around the globe. According to a report released last month by the Canadian Parliamentary Budget Office, Canadian corporations likely avoided $25 billion in taxes in 2016 (in line with previous Corporate Knights/Toronto Star analysis which found $62.9 billion in corporate avoidance over six years). In the U.S., 60 profitable Fortune 500 companies (including Amazon,Chevron, General Motors, Delta, Halliburton, and IBM) earned over US$79 billion collectively in 2018 and yet they paid $0 in taxes. Many received tax refunds.

Robert Bird, a University of Connecticut business law professor, and I argue in the Journal of Business Ethics that the problem of tax avoidance is similar to that of overfishing, air pollution, and other so-called “collective action problems.” These are problems for which everyone is better off by cooperating in the solution. If increasingly more of us avoid taxes, the impact will compound to impair the health, safety, and productivity of a nation. Obviously, tax avoidance diminishes the total resources available in public coffers to fund critically important education, infrastructure, and even defense spending.

It also inflicts harm on the regulatory system and all those who participate in it, including you, me, and our employers. Tax regulators and legislators have to expend more resources to police compliance and shore up textual weaknesses in the law, making compliance more challenging and costly for all of us.

Healthy firm culture is built through ethical leadership and trust. Tax avoidance necessarily requires hiding or clouding information from regulators, stakeholders, and the public. That kind of conduct indicates to others that hiding information or engaging in self-interested behavior is permissible. This signaling can erode a firm’s ethical culture and governance.

How do we fix this? We can begin by adding taxes to the long list of important sustainability issues. This doesn’t mean asking whether the firm can get tax credits for adding solar panels. Rather, it means asking if you or your firm are fairly and adequately contributing taxes in the communities affected by your operations, products, services, and employees.

For many firms, a starting point could be including tax analysis in sustainability reporting for the Global Reporting Initiative or the Dow Jones Sustainability Index. For firms that already include taxes in sustainability reporting, most report only superficial or aggregated numbers that obscure the answers to whether a firm is contributing appropriate amounts, for appropriate activities, at appropriate times, to the appropriate sovereign. It’s these questions that should drive a sustainable tax policy.

–

Author note: In addition to the article in the Journal of Business Ethics, a research brief is available for sustainability practitioners in a new series published by the Ray C. Anderson Center for Sustainable Business at Georgia Tech’s Scheller College of Business.

Karie Davis-Nozemack is an associate professor of business law and ethics at Georgia Tech’s Scheller College of Business and a faculty affiliate of the Ray C. Anderson Center for Sustainable Business. Her research examines legal and ethical mechanisms for constraining opportunistic managerial behavior, including tax whistleblowers, tax compliance strategies, and fiduciary duty.

The post It’s time we see paying taxes as a sustainability issue appeared first on Corporate Knights.

The high cost of low corporate taxes

Marco Chown Oved, Toby Heaps and Michael Yow — Mon, 29 Jan 2018 14:00:21 +0000

For every dollar corporations pay to the Canadian government in income tax, people pay $3.50. The proportion of the public budget funded by personal income taxes has never been greater.

At a time when Prime Minister Justin Trudeau has made tax fairness a centrepiece of his government, the Toronto Star and Corporate Knights magazine spent six months poring over tax data to determine how much income tax corporations are really paying.

We found the amount of tax most big companies pay has been dropping as a proportion of their profits for years, and not only because the corporate tax rate has been cut repeatedly. Canada’s largest corporations use complex techniques and tax loopholes to reduce their taxes significantly below the official corporate tax rate set by the government.

Our analysis of the financial filings of Canada’s 102 biggest corporations shows these companies have avoided paying $62.9 billion in income taxes over the past six years.

The 2011-2016 audited financial statements of all large Canadian corporations (those worth more than $2 billion) reveal they paid an average of 17.7 per cent tax.

During that time, the average official corporate tax rate in Canada for this group of companies was 26.6 per cent.

That 8.9 per cent gap translates into tens of billions of dollars that could have been used to pay for the schools, roads, hospitals, police and paramedics we all rely on.

The accounting manoeuvres Canadian corporations perform to reduce their tax bills are legal. But complex reporting rules make it difficult to determine if a company is actually paying its fair share of taxes.

The Star/Corporate Knights analysis looked at the amount of taxes companies paid as a per cent of profits over a six-year period to even out yearly fluctuations. Big losses and investments happen, and may reduce a corporation’s tax rates in any given year, but consistently low tax rates can indicate a pattern of avoidance.

This project is the first comprehensive attempt to combine Canadian corporations’ audited financial statements with government data to quantify the extent of corporate tax avoidance — and determine how much it costs the rest of us.

“Some income simply is not taxed,” said Peter Spiro, an economist with the Mowat Centre, a public policy think tank at the University of Toronto. “The public policy question becomes: are these tax breaks or tax exemptions justifiable?”

At a time when stocks and corporate profits are near record highs, the federal government has targeted small private corporations, expecting to recoup an estimated $250 million in tax revenue by closing loopholes.

If Ottawa instead closed all the loopholes used by large corporations, it could collect 40 times more than that.

In an average year, the 102 biggest companies in Canada pay $10.5 billion less than they would if they paid tax at the official corporate tax rate.

“That gap is undermining the integrity of the tax system,” said Jordan Brennan, an economist with UNIFOR, Canada’s largest private sector union, which represents Star employees. “Once we establish what the rates are, you have to have enforcement mechanisms to make sure (corporations) pay them.”

“If the government closed that gap they stand to gain $10 billion every year. Think about what you could do with $10 billion each year. That’s a national child care program. That’s any government’s signature program. Even if you’re fiscally conservative, you could use it to reduce the deficit. That’s not an insignificant portion of revenue,” said Brennan.

The last year that corporations paid as much income tax as people was 1952.

That year, the Canadian government was flush with money and used it to start setting up the social safety net with the establishment of the Old Age Security pension program. The private sector was also doing well, as corporate capital investments hit record levels and wages soared. The postwar boom was in full swing and the wealth was being enjoyed widely: Suburbs were exploding, schools and hospitals were built and new highways were laid down across the country.

This era of public and private prosperity — “unrivalled in our history” said then-federal finance minister D.C. Abbott — came after Canada had twice imposed an “excessive profits” tax during both world wars.

Excessive profit, or rent, is an economic term used to describe profit beyond what is needed to keep a business running.

For the first half of the 20th Century, the Star campaigned for establishing and keeping this excessive profit tax in place, repeatedly arguing: “There is, in fact, no better or juster source of tax revenue than unreasonably high profits.”

Under publisher Joseph Atkinson, the Star’s editorial board made this argument for taxing corporate profits in 1946: “A special tax should be levied upon profits in excess of a reasonable amount … The principle of imposing a proportionately higher tax upon high incomes of individuals is recognized as just, and should be in a measure applicable to the profits of corporations when these are beyond reason.”

Today, Canada’s economy is the strongest in the G7, but municipal, provincial and federal governments have to borrow money every year, or dip into savings, to make ends meet. Inequality is at an all-time high. The rich are getting richer, the poor are getting poorer and public infrastructure — from transit to social housing — is failing and falling apart.

While Canadian governments have trouble coming up with cash for public services, Canadian companies are rolling in dough.

Among Canadian corporations, one sector emerges as the most profitable. It’s also the sector with the companies that pay the lowest taxes: banks.

Last year, Canada’s Big Five banks — BMO, CIBC, RBC, Scotiabank and TD — occupied the top five slots on Report on Business Magazine’s Top 1000 ranking of the country’s most profitable companies. Collectively, they booked $44.1 billion in pre-tax profit. (Their just-reported 2017 profits were even higher.)

That same year, the Star/Corporate Knights analysis found those five banks avoided $5.5 billion in tax.

This was not a one-off. Over the past six years, while the Big Five have been posting record profits, the tax rate they paid has dropped.

According to Statistics Canada, pre-tax profits in the banking sector as a whole soared by 60 per cent from 2010-2015. During that period, the sector’s tax rate (taxes paid divided by pre-tax profit) has dropped by almost the same amount.

Banks reduce their taxes by far more than other corporations. In 2015, businesses in the rest of the economy (including the banks’ credit union cousins) paid taxes at a rate triple that of banks.

This number is skewed by the huge losses oil and gas firms suffered in 2015. If oil and gas companies are removed, the tax rate paid for non-financial companies is still 24 per cent in 2015, or 2.5 times greater than banks.

Not only do banks pay a lower tax rate than other companies, Canadian banks pay at a lower rate than banks in other countries.

While all banks legitimately reduce their tax burdens through depreciation, investment losses, loan interest writeoffs and tax credits, Canadian banks use these measures to erase more tax than their global competition. We did an international comparison and found Canada’s big banks have the lowest tax rate in the G7.

This November, when the Senate was discussing closing loopholes for small corporations, Senator Scott Tannas asked Finance Minister Bill Morneau, “why wouldn’t you hunt where the ducks are … with the big banks?”

“If we could get them to pay what should be a fairly reasonable average between their U.S. operations and Canadian, we’d be billions ahead. I don’t understand why, year after year, only Bay Street has a special rate,” Tannas said.

How do the Canadian banks do it?

The Big Five earn the vast majority of their revenue in Canada and the U.S., which has a higher corporate tax rate than Canada. Yet in their financial statements to investors, the banks declare that lower tax rates in their “international operations” helped them reduce their taxes by $6.5 billion over the past six years.

While the banks don’t disclose how they lowered their tax bills through their international operations, they all have subsidiaries in tax havens.

Many of these tax haven subsidiaries have tiny offices, but account for massive profits. TD, for instance, has a subsidiary in Ireland that is valued at over $1 billion, even though TD Ireland employed only two of the bank’s more than 85,000 staff.

Canadian banks have subsidiaries in Barbados (0.25 — 2.5 per cent corporate income tax), the Cayman Islands (0 per cent), Ireland (12.5 per cent), Bahamas (0 per cent), Bermuda (0 per cent) and Luxembourg (starts at 19 per cent, but can be much lower as many multinational companies negotiate special tax deals).

All of these tax havens have something in common: they have a tax treaty or Tax Information Exchange Agreement (TIEA) with Canada. These treaties and agreements were meant to prevent the double taxation of corporate profits, but in practice they make it possible for companies to avoid paying tax altogether, recording profits where there are low or no income taxes and then repatriating this income to Canada tax-free.

Canada has admitted this is a problem, and this year joined 67 countries in an international effort to crack down on a widespread tax avoidance method called “profit shifting,” where a corporation performs internal transactions to concentrate its profits in tax havens.

“We want to make sure that large companies aren’t inappropriately having expenses in high-tax jurisdictions and taking profits in low-tax jurisdictions,” said Morneau in the Senate last month. “We want to have rules that appropriately force people to pay taxes in jurisdictions where the business activity is actually happening.”

NDP justice critic Murray Rankin suggests the government go one step further and explicitly ban corporate transactions without any “economic substance” — a move, he says, that will hamper companies’ ability to exploit offshore tax loopholes.

The Star and Corporate Knights showed this analysis to more than two dozen financial and economic experts. Many of them explained the findings by pointing to Canadian tax rules that allow much of the banks’ investment income to go untaxed — especially if that income is recorded in an offshore tax haven.

Tax expert Spiro singles out one tax break: Dividends paid by foreign subsidiaries to their Canadian parent companies are tax free.

What qualifies for this tax exemption “is particularly generous in Canada,” Spiro said. “There is an argument to be made that there is some benefit (to the economy) from this, but the issue is whether you need quite such a generous exemption.”

According to their financial statements, over and above their tax savings from “international operations,” the Big Five saved an additional $8.6 billion in taxes from “tax-exempt income” over the past six years.

Internationally recognized tax expert Brian Arnold says Canadian tax law gives an unfair advantage to companies that invest abroad over companies that keep their money at home.

“It’s a subsidy for foreign investment by Canadian corporations,” Arnold said. “This situation is so clearly abusive that it is difficult to understand how the government can defend it with a straight face.”

Peter van Dijk, a national tax policy expert at the accounting firm PwC, pointed out that this is not a trick corporations sneak by the government.

“This was a conscious policy decision to preserve the ability of Canadian companies to compete internationally,” he said in an email.

The Star and Corporate Knights asked international financial reporting expert Paul Rhodes to review the six years of financial disclosures made by the 10 companies with the biggest tax gaps.

While Rhodes was able to identify some broad areas where corporations were reducing their tax bills, he was unable to determine the precise techniques used due to the limited information that’s made public.

“For example, the actual operations in tax havens are not described in any way … On the face of it, you can see how much money a company is saving in tax through tax havens, but you can’t look behind that to see how and why those tax savings are coming about,” said Rhodes.

“The information disclosed may comply with the accounting rules, but it is woefully inadequate in answering these types of question,” he said after spending a week reviewing the companies’ public disclosures.

While the way we measured the tax gap has some weaknesses, Rhodes said the value in this exercise comes from the differences it identifies between companies.

“This really casts some light on the largest corporations, where some companies — the banks are singled out by an order of magnitude — appear to be avoiding large amounts of taxes.”

The tax avoidance figures and Rhodes’ analysis was provided to the 10 companies that avoided the most tax. Each corporation was asked for comment or reaction, which is summarized in the table below. While many questioned the methodology, none contested the numbers.

“Often when companies don’t like the results, they say the numbers or methodologies are wrong,” said Scott Dyreng, a visiting scholar at Oxford University and author of a widely referenced paper on global corporate tax avoidance, which used the same method as this analysis.

“There are all kinds of criticisms of this method for calculating a tax gap, but there is no other way to compute it that does not have at least an equal number of criticisms,” Dyreng said.

The Big Five banks referred the Star and Corporate Knights to the Canadian Bankers Association, which was provided with a summary of our analysis.

“Canada’s banking sector is proud of its commitment to responsible corporate citizenship, which includes paying its full share of taxes and contributing to the prosperity of Canadian society,” wrote CBA spokesperson Aaron Boles in a statement.

Canadian banks are considered the soundest in the world and have received accolades for the prudence that allowed them to weather the global financial crisis of 2007-2008 better than banks in the U.S. and Europe.

“When banks are profitable, they are stable,” states the CBA website, noting banks employ 285,000 people in Canada. “When banks succeed, the economy and communities prosper.”

The CBA said focusing on corporate income tax provides an incomplete picture of the banks’ total tax contribution, which should include payroll taxes, social security contributions, excise taxes, sales taxes and property taxes.

This is not how people calculate their income tax rate. If individuals included the HST they paid on everything they bought, their property taxes and the amount they pay the government for their water bills, their tax rate would balloon as well.

When comparing income taxes alone, the more than 18 million Canadian taxpayers pay 3.5 times more than all corporations, even after individuals receive their tax refunds from the government.

The CBA also pointed out that in addition to paying taxes, banks are among Canada’s top corporate donors, providing multimillion dollar support for non-profit community groups across the country.

In the past six years, total donations made by the Big Five amounted to less than one-tenth of what they avoided in tax.

The CBA has long argued any tax changes that impact bank profits could hurt average Canadians.

“As most Canadians are shareholders in Canada’s banks either directly or through the Canada Pension Plan, pensions and mutual funds, these payments benefit the vast majority of Canadians and their retirement savings,” the group wrote in a submission to the House of Commons Standing Committee in 2010.

Stockholder data collected by Bloomberg and StatsCan show that more than 80 per cent of Canadian stocks are owned (both directly and indirectly through pensions and mutual funds) by foreigners and the wealthiest households in the country.

Historically, businesses have argued that raising corporate tax will hurt investment. But StatsCan numbers show that drastic cuts to the corporate income tax rate over the last 20 years have not stimulated new business investment.

Between 1997 to 2016, Canada’s corporate income tax rate was cut almost in half, from 43 per cent per cent to 26.7 per cent. But investment in machinery and equipment and in intellectual property is still below the 1997 level as a per cent of GDP.

“(Corporate tax cuts) were supposed to incentivize greater job creation and investment. This didn’t happen,” said UNIFOR economist Brennan. “And we’ve seen a massive uptick in activities that are hard to classify as productive: stashing cash on the balance sheet, share buy backs, massive increases in executive compensation and a huge increase in merger activity. That’s not what was supposed to happen.”

Peter Nicholson, former Finance Canada deputy minister, says Canada has implemented a market friendly tax rate, but failed to reap the rewards in productivity and innovation.

“I think corporate behaviour is generally driven more by opportunity and competition than by tax rates per se. … I don’t think raising or lowering taxes has a hell of a lot of influence on where companies invest,” Nicholson said.

“In Canada, the evidence is that increasingly a larger fraction of income to corporations is related to excessive profits,” said Joseph Stiglitz, a Nobel Laureate and Professor at Columbia University. “Lower tax rates encourage firms to engage in more excessive profit seeking. You have greater incentives to create more monopoly power, to lobby (the government), because you get to keep a larger fraction of the returns from the lobbying activity.”

“Some countries, including Canada, have attempted to dramatically cut taxes on the wealthy and let corporate tax avoidance prosper,” said Gabriel Zucman, an economist at Stanford University.

“The result of these ‘trickle down’ policies which started in the 1980s is now clear: income and wealth have boomed for a tiny fraction of the population, but this has not benefitted the rest of the population at all. We must learn the lessons from this big natural experiment. The main lesson is that to have broad-based growth, we need an equitable tax system, where big corporations and high-earners in the financial industry and elsewhere pay their fair share — otherwise Trumpism will prevail.”

What can be done?

Tax collectors around the world have had a tough time getting financial companies to pay more tax. Because billions can be moved around the planet at the click of a mouse, and payments can be recharacterized after the fact for tax purposes, it’s nearly impossible to shut down the loopholes they use. One potential solution is to tax cash flows instead of profits, but this would require rewriting the entire tax code.

A simpler solution that gets at the heart of the problem is a bank levy. Already implemented in the U.K. and Australia, it has the additional advantage of being difficult to wriggle out of.

With some exceptions, Australia charges a levy of 0.015 per cent every three months on banks’ riskier borrowing, “ensuring that the banking sector makes a fair contribution to the economy,” the government states on its website.

The same levy in Canada would have brought in up to $2 billion in 2016, bumping up the tax rate for the Big Five banks from 14 per cent to 18 per cent. A modified bank levy could also be applied more broadly to the financial sector. And since the financial sector accounts for more than two-thirds of the avoided taxes by all large Canadian corporations, a bank levy would go a long way toward ensuring corporations pay taxes closer to the official rate.

It’s a solution that the Mintz report, commissioned in 1996 by then-finance minister Paul Martin, recommended for Canada. The measure was to be called a “temporary increase in financial institution surtaxes” and was projected to bring in up to $300 million each year at the time.

The temporary surtax was to be phased out as taxes for the financial sector were brought into line with the rest of the economy.

“We suggest that capital and income taxes on financial institutions be adjusted over time to be comparable with those imposed on other large corporations in other industries.” stated the report, co-authored by tax expert Jack Mintz.

While many of Mintz’ suggestions were put in place, the bank levy never got off the ground.

Twenty years later, corporations — and especially banks — continue to pay less than the rest of us.

***

How 10 companies avoided $41 billion in taxes, 2011-2016

TD Canada Trust

Average tax rate: 14.2%

Pre-tax Profit: $50.8B

Income tax paid: $7.2B

Tax gap: $6.3B

Sources of tax reductions

“Lower tax rates in international operations” cut taxes by $2.9 billion. While 91 per cent of TD’s revenue is earned in Canada and the U.S, the bank has subsidiaries in Ireland and Luxembourg. Tax-free “dividends received” cut taxes by a further $1.6 billion.

Company response

“Our cash taxes fluctuate year-over-year based on foreign currency movement and, therefore, we believe the effective tax rate is a better measure of our overall income tax contribution,” wrote a TD spokesperson in an email.

Royal Bank of Canada

Average tax rate: 17.8%

Pre-tax Profit: $66.3B

Income tax paid: $11.8B

Tax gap: $5.8B

Sources of tax reductions

“Lower average tax rate for subsidiaries” cut taxes by $1.5 billion. While 89 per cent of RBC’s revenue is earned in Canada and the U.S, the bank has subsidiaries in Antigua, Bahamas, Barbados, Cayman Islands, Dominica, Luxemburg, Montserrat, Netherlands, St Kitts, St Lucia and Trinidad & Tobago. “Tax exempt income from securities” cut taxes by a further $2.2 billion.

Company response

“RBC is one of the largest taxpayers in Canada, paying $3.8 billion globally of which $2.8 billion was paid in Canada in total income and other tax expenses in the 2016 fiscal year,” wrote an RBC spokesperson.

Brookfield Asset Management Inc

Average tax rate: 6.1%

Pre-tax Profit: $26.5B

Income tax paid: $1.6B

Tax gap: $5.3B

Sources of tax reductions

“Foreign tax effect” cut taxes by $1.7 billion. While 74 per cent of its revenue in 2015 was earned in Canada or countries that have higher tax rates than Canada (US, Australia, Brazil), Brookfield has 798 subsidiaries including some in tax havens such as Bermuda. “Taxable income attributable to non-controlling interest” cut taxes by $1 billion, as Brookfield uses a complicated series of limited partnerships to minimize its taxes.

Company response

“The face value of ‘absolute tax gaps’ is very simplistic and if not put in context, can be very misleading,” wrote a Brookfield spokesperson. “Over 80% of our operations are outside of Canada … These physical assets are subject to full corporate income taxes in those jurisdictions.”

Scotiabank

Average tax rate: 17.1%

Pre-tax Profit: $51B

Income tax paid: $8.7B

Tax gap: $4.7B

Sources of tax reductions

“Lower average tax rate for subsidiaries and foreign branches” cut taxes by $1.4 billion. While 58 per cent of ScotiaBank’s revenue is earned in Canada, the bank has subsidiaries in Anguilla, Bahamas, Barbados, Belize, BVI, Cayman Islands, Costa Rica, Ireland, Panama, Singapore, and Turks & Caicos. The bank cut its taxes a further $1.4 billion thanks to “tax exempt income from securities.”

Company response

“Scotiabank provides retail, commercial and corporate banking services in many countries around the world and pays taxes in those countries in accordance with local tax legislation. Scotiabank believes in paying its fair share of taxes globally and, in doing so, we follow both the letter and the spirit of the law,” wrote a Scotiabank spokesperson.

Bank of Montreal

Average tax rate: 13.4%

Pre-tax Profit: $30.7B

Income tax paid: $4.1B

Tax gap: $4.0B

Sources of tax reductions

“Tax-exempt income from securities” cut taxes by $1.7 billion. Large losses in previous years also reduced the tax bill. BMO has subsidiaries in Barbados, Bermuda, Ireland, and Netherlands.

Company response

BMO had an average effective tax rate of 19.2% over the past 6 years as computed in accordance with generally accepted accounting principles,” wrote a BMO spokesperson. “The cash effective tax rate as computed by Corporate Knights is not an appropriate measure of effective tax rate as it does not reflect generally accepted accounting and tax principles. For example, cash effective tax rate does not reflect the use of loss carry forwards, tax on items that are not in our accounting income or tax-exempt income on securities.”

Power Financial Corporation

Average tax rate: 10.6%

Pre-tax Profit: $23.6B

Income tax paid: $2.5B

Tax gap: $3.8B

Sources of tax reductions

“Lower average tax rate for income earned outside Canada” cut taxes by $850 million. While 69 per cent of the company’s revenues are earned in Canada and the US, the company has subsidiaries in Ireland, Netherlands, and Switzerland. “Tax exempt income from securities” cut taxes a further $1 billion.

Company response

Power Financial referred its response to Great- West Life, which is a subsidiary and “represents approximately 85% of (Power Financial Corp’s) consolidated earnings before tax.”

Great West Life

Average tax rate: 9.7%

Pre-tax Profit: $18.3B

Income tax paid: $1.8B

Tax gap: $3.1B

Sources of tax reductions

“Lower tax rates in international operations” cut taxes by $841 million. While the company earns 58 per cent of its revenue in Canada and the U.S., it has subsidiaries in Barbados, Bermuda, Cayman Islands, Ireland, Singapore, and Luxembourg. “Non-taxable investment income” cut the tax bill a further $1 billion.

Company response

“Investment income from insurance operations earned in jurisdictions outside of Canada is subject to taxation in those foreign jurisdictions rather than Canada,” wrote a spokesperson.

“Great-West takes its social responsibility seriously and has donated over $70 million to our communities in the time frame you have set out.”

Canadian National Railway Company

Average tax rate: 15.2%

Pre-tax Profit: $24.8B

Income tax paid: $3.8B

Tax gap: $2.8B

Sources of tax reductions

CN has made $15 billion in capital investments since 2010 and is allowed by CRA to write off its railway infrastructure over a shorter period of time for tax purposes than for accounting purposes. Unlike its competitor CP Rail, CN does not enjoy a forever exemption on federal income taxes.

Company response

“The difference between CN’s effective tax rate and cash taxes paid is mainly explained by the computation of CN’s taxable income versus its accounting earnings. CN depreciates its railway infrastructure over a shorter period of time for tax purposes than for accounting purposes,” wrote a CN spokesperson. “Railroading is a capital intensive industry. CN has made $15 billion in capital investments since 2010.”

BCE Inc

Average tax rate: 13.1%

Pre-tax Profit: $21.9B

Income tax paid: $2.9B

Tax gap: $3B

Sources of tax reductions

Generous depreciation allowances, tax loss carry forward balances and research and development tax credits.

Company response

“There are many differences in income calculated for financial statement purposes and income calculated for tax purposes,” wrote a company spokesperson. “Between 2011 and 2016, the dollar difference between accounting depreciation and tax depreciation was approximately $3.9 billion.”

Imperial Oil

Average tax rate: 16.1%

Pre-tax Profit: $22.5B

Income tax paid: $3.6B

Tax gap: $2.1B

Sources of tax reductions

Imperial Oil has made $28 billion in investments over the period of this analysis and was able to reduce its tax bill because of generous depreciation allowances allowed by the CRA for investments made by oil and gas companies.

Company response

“Imperial follows all laws and regulations, including those in the Income Tax Act,” wrote a company spokesperson. “During the time period you are examining, Imperial invested a significant amount in capital expenditures, which is now being depreciated for income tax purposes per CRA-approved regulations.”

Reporters

Toby A.A. Heaps and Marco Chown Oved

Data Analysis

Michael Yow

Editors

Lynn McAuley and Ed Tubb

Project Producers

Tania Pereira and Brian Liu

Web Development and Design

Cameron Tulk and David Schnitman

Executive Creative Director, Digital

Fadi Yaacoub

Marco Chown Oved is an investigative reporter with the Toronto Star.
Toby A.A. Heaps is the CEO of Corporate Knights.
Michael Yow is a data analyst with Corporate Knights.

The post The high cost of low corporate taxes appeared first on Corporate Knights.

December 12, 2014

CK Staff — Fri, 12 Dec 2014 06:00:22 +0000

A hotel made of recycled shipping containers?

Sioux Lookout, a small town of 5,000 people in northwestern Ontario known for its fishing camps, now has another claim to fame: the continent’s largest hotel made from old shipping containers. In all, 120 steel containers – older, surplus containers lying around in shipping yards – were used to create this 60-room, two-storey hotel. The containers lay on a steel grill foundation, which is supported by steel piles secured to bedrock. “It took three containers to make two rooms for usage of 90 containers,” reports The Packet & Times, the local news site in Orillia. “The other 30 were used to construct the corridor, storage rooms and laundry room.” Not only is the hotel more sustainable because it’s built largely from recycled material, it also took less than half the time to build it compared to conventional approaches.

U.K. attempts crackdown on corporate tax dodgers

Governments worldwide have been growing more concerned by how some multinational companies avoid taxes by locating their legal headquarters in low-tax jurisdictions, even though a significant amount of their sales are done in countries with higher corporate taxes. Google, for example, has been identified as a major user of this tactic, funnelling profits really earned in the U.K. to its lower-taxed Irish subsidiary. The U.K. is having none of it. As one Forbes article put it, “The Empire Strikes Back.” Proposed legislation, the details of which were just published, creates a new “Diverted Profits Tax” that will charge a 25 per cent tax rate on profits declared or discovered as diverted. The rate is 5 percentage points higher than the U.K. domestic corporate tax rate expected in 2015. “Whilst there may be a popular consensus that the arrangements targeted are unacceptable, the change will cause great uncertainty across many businesses as to whether legitimate arrangements are caught,” according to a legal brief from law firm Norton Rose Fulbright, which calls the proposed legislation “game changing.” Court challenges are expected, but it won’t just be controversial for big business. The OECD had hoped to coordinate its own international response to so-called multinational tax planning. By acting unilaterally, the U.K. is stealing the OECD’s thunder.

EU plan to drop recycling, clean air rules stirs controversy

It would be one of the most progressive waste regulations in the world, but the EU Commission is now looking to scrap a “circular economy package” that would direct EU members to recycle at least 70 per cent of their waste (and 80 per cent of product packaging) by 2030. It would also phase out landfill dumping and mandate a 90 per cent paper-recycling rate by 2025. Savings resulting from the proposed regulations have been estimated at $860 billion, while it has the potential to create 280,000 jobs, according to a report in BusinessGreen. Why is the EU Commission balking? It seems some members considered recycling laggards are expected to resist. In response to the EU Commission’s proposal to drop the rules, a coalition of seven trade bodies, environmental organizations, and professional associations expressed “dismay” in a letter to Liz Truss, the U.K.’s environment secretary. “There is a very broad consensus amongst industry groups and associations, major companies, NGOs and municipalities that the circular economy package offers huge potential for green job creation, resource security, environmental protection and economic growth,” reads the letter, which urges the U.K. government to persuade EU leadership to reconsider.

Has the U.S. reached a turning point on oil?

Taylor Swift’s popular “Shake It Off” tune would seem an appropriate theme song for a compelling interactive infographic released by Bloomberg, and it’s something that should concern Canada’s oil industry. The infographic, titled “America Is Shaking Off Its Addition to Oil,” is a series of 15 graphs explaining what’s going on. In a nutshell, the graphs show how U.S. domestic oil production is at its highest level in three decades and oil use per dollar of GDP is lower than it’s been in more than 40 years. One of the most interesting charts shows how GDP and oil consumption, which have historically moved in tandem, are beginning to diverge. Since 2006, U.S. GDP has been growing while oil consumption has been falling – and the gap is getting bigger. Other graphs explain the causes: more efficient cars, retiring boomers driving less, young people moving to cities, and more young people riding public transit. Overall energy efficiency and the move to alternative energy sources are also big contributors. This is an infographic that everyone interested in energy trends should look at. Kudos to Bloomberg for putting it together.

Time to price carbon, remove subsidies: IEA chief

On the topic of changing dynamics in the oil market, a timely Huffington Post commentary by Maria van der Hoeven, executive director of the International Energy Agency, urges countries to price carbon and remove oil industry subsidies while the price of crude is so low. Remember, this is an agency that has been historically conservative on environmental issues and was founded on the backs of fossil fuel interests. “With the drop in oil prices delivering a shot of economic stimulus to consumers around the word, policymakers have leeway to take actions that even a year ago would have been unthinkable,” she writes. For one, opposition to removing fossil fuel subsidies – amounting to more than half a trillion dollars in 2013 – “may well be muted” in the current climate of low oil prices. Secondly, “policy makers in major energy consuming countries should take advantage of the oil market’s collapse to introduce carbon pricing, taxes or low-carbon mandates, or to strengthen existing schemes.” Complacency would be a mistake, van der Hoeven concludes. Policymakers “have a once-in-a-generation chance to get us back on track. Let’s hope they seize this moment.”

Catholic leaders, meanwhile, weigh into climate debate

We know the Pope’s position on the need to act on climate change, but his words were given even more force this week when Catholic bishops from around the world – representing 1.2 billion people on every continent – urged an end to fossil fuel use. As Matt McGrath of the BBC reported, “this is first time that such a global collection of senior priests have made such a call.” The bishops, in a statement, cited their obligation to challenge the misuse of nature and protect those people, mostly the poor, who will feel the worst impacts of climate change. “We felt this joint statement had to come now because Lima is the milestone on the way to Paris, and Paris has to deliver a binding agreement.” The statement adds yet another influential voice to the growing chorus of global stakeholders urging concrete action on climate change.

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The post December 12, 2014 appeared first on Corporate Knights.