Lux Leaks in Canada

I thought we'd have a look at a few of the 35 Canadian corps mentioned by the International Consortium of Investigative Journalists in their Luxembourg foreign tax fiddling leaks but first ...

On Monday, Minister of National Revenue Kerry-Lynne Findlay proclaimed in the House: 

"One of our government's key areas of concern is the issue of international tax evasion and aggressive tax avoidance."

By Wednesday, courtesy of CBC, NDP Megan Leslie shot back : 

"An international investigation has revealed a Canadian crown corporation uses phony Luxembourg shell companies to avoid paying foreign taxes. So how are Canadians supposed to trust the Conservatives to crack down on aggressive tax avoidance when they're busy setting up shell companies of their own?" 

Tony Clement, President of the Treasury Board, responded that the Public Sector Pension Investment Board is "at arms length, arms length from the federal government." 
And just in case that wasn't clear enough, Joe Oliver leaned into the mike to crossly repeat "arms length". You can watch this above exchange in Montreal Simon's excellent account.

ShamWow Tony is trying to be at arms length from his own job here.
From the Public Sector Pension Investment Board website :

"Directors are appointed ... on the recommendation of the President of the Treasury Board.   Candidates for directorships are selected from a list of qualified Canadian residents proposed by an external nominating committee established by the President of the Treasury Board.   The Chair of the Board is designated from among the Directors ... on the recommendation of the President of the Treasury Board."

The board seem like a highly qualified and capable bunch, all appointed since 2006 for four year terms and variously coming from backgrounds in banking, insurance, and Vampire Squid Canada. 
It must get tricky though - one of them is on the board of Husky Energy Inc., a company 70% owned by Li Ka-shing and one of the companies profiled in the ICIJ leak. 

Here's a three minute primer on how these Luxembourg tax loopholes work : 



OK, on to a few of the Canadian companies mentioned in the ICIJ leaks, as written up by PricewaterhoseCoopers.

United Technologies Corporation (UTC) - multinational billionaire owner of Sikorsky Helicopters, Otis Elevators, Pratt & Whitney aircraft engines, etc etc - uses a Canadian company so small it's housed inside Pratt & Whitney to set up shell companies in Luxembourg and funnel money to them :

"HAMILTON STANDARD CANADA, INC., a company incorporated under the laws of Quebec (Canada) , with offices c/o Pratt & Whitney Canada ...

"In view of facilitating the cash redeployment out of Hamilton Standard Canada Inc., UTC envisages the use of a Luxembourg-based finance company.

Hamilton Standard Canada Inc. ("HSC"), a Canadian incorporated entity, acting as Limited Partner, will set up Arlington Luxembourg SCA ("Arlington") together with Berkeley Luxembourg S.a r.l. ("Berkeley"), acting as an Unlimited Partner.

Subsequently, Hamilton will transfer funds to Arlington in exchange for issuance of Mandatory Redeemable Preference Shares ("MRPS"). Arlington would then finance in its turn various subsidiaries of the group, as necessary.

Such entities will therefore be considered as Luxembourg tax residents.

Sinopec - 

"TIPTOP Energy Limited, a Hong Kong company, is a fully-owned subsidiary of SIPC. 

TIPTOP Luxembourg Sari, created on 10 October 2008, has incorporated a fully owned Canadian subsidiary (hereinafter referred to as "Bidco"). Bidco has launched a public takeover of Tanganyiak Oil, a Canadian listed and incorporated company. TIPTOP Luxembourg Sari's existing share capital is EUR 12,500. To fund the Canadian acquisition, TIPTOP Energy Limited plans to increase TIPTOP Luxembourg Sarl's equity from EUR 12,500 to about EUR 1 million and to change the denomination of the share capital at the same time to CAD. For the additional financing of its participation in Bidco, TIPTOP EnergyLimited will grant TIPTOP Luxembourg Sari an interest free loan in an amount of about CAD 2.1billion.

In case it is necessary, for dividends and net wealth tax, the double tax treaty concluded between Luxembourg and Canada also applies, should TIPTOP Luxembourg Sari hold at least a participation of 10% in the capital of Bidco since the beginning of its fiscal year (particularly, there is no requirement for a minimum taxation)."

UK's Doughty Hanson set up a Luxembourg shell, Luxco, loaned itself $3M and bought preferred shares in a Canadian solar inverter tech company. 

Only interesting because one of DH's former principals, who focused on Benelux markets, made the jump from DH last December to do private equity in the Toronto office of our other pension board, the Canada Pension Plan Investment Board.

Li Family Trusts   Mr Li Ka-Shing, who owns a good deal of Vancouver, loaned its Husky Energy shares to a Luxembourg shell through two of its Barbados companies. The shell was entitled to all Husky dividends for the period of the loan : "The securities lending agreement for [the shell] will be neutral both from an accounting and tax perspective." 

Meanwhile it was almost exactly one year ago that 270 unionized welders and pipefitters contracted to the Husky tarsands project were laid off and replaced by cheaper temporary foreign workers.

 
These are the corporate legal loopholes and tax avoidance schemes feeding the 1% and fueling growing wealth disparity and austerity bullshit - and there's no evidence any of it is illegal!

CNN Money : 

"Luxembourg is like a corporate version of extraordinary rendition, a place where companies can do their dirty work that would not be permitted at home," said Crawford Spence, professor of accounting at Warwick Business School.

 

The Tax Free Tour is an excellent doc on this.  To see what holding corps to account for their foreign tax fiddling actually looks like, skip to the 33:33 minute mark.

Dec 11 2014 Update : Bombardier among companies exposed for controversial Luxembourg tax plan

"Drafted for the company by consultants Ernst & Young, the proposal involved a complicated restructuring that would send $500 million from Bombardier's U.S. unit to a Luxembourg subsidiary in exchange for mandatory redeemable preferred shares, which are treated as debt.All payments made by the Luxembourg-based company are treated as interest payments and thus deductible and subject to low tax rates in the grand duchy.Bombardier can then repatriate the money to Canada in the form of dividends, which are not taxable under a tax deal between Canada and Luxembourg.

Bombardier has been the recipient of millions of dollars in federal and provincial subsidies to boost the aerospace industry."

Upperdate : 28 year old Antoine Deltour, LuxLeaks leaker and former PwC auditor, is being prosecuted by Luxembourg for theft, violating secrecy laws, and violation of trade secrets.
Fuck you, Luxembourg.
.