A few months ago two drug companies merged with the intent of having their head office in Ireland in order to save US corporate taxes. We know their are trillions of dollars in bank accounts not in the US because it is taxed less. When you hear about these stories the one thinks of The Bahamas, Bermuda, Cayman Islands, Panama and other countries around the world. Last year, on a visit to the Cayman Islands (did not open a bank account)but saw all the big mutual fund companies have offices or signs in front of offices on the islands. There are good reasons, the laws are written what goes on in the Cayman stays in the Cayman and will not be told to anyone under the threat of jail terms. For many companies and people, tax avoidance is part of normal life – the companies and people keep more of their wealth and pay less taxes to their home governments. There can be as many reasons as their people for people to reduce taxes – some believe in small governments and only willing to pay a little, but not too much. It is generally believed about 15% of the money around an economy is from crime proceeds – now days the drug industry is the biggest component. However, not paying the taxes legally is something many more strive to do. It is relatively easier to open and transfer money to accounts in the islands, and once it is there because of secrecy laws, it typically gets transferred between number companies a few times before it lands at its destination. The secrecy laws makes tracking the funds very difficult and very time consuming.

In a book called Canada – A New Tax Haven by Alain Deneault published by Talonbooks, Vancouver, 2015, the authors suggest that Canada ( a so called respectable country) has embraced or made it easier for companies to use Caribbean tax haven countries through treaties and various banks having a long history of branches in the region. Over the years, the customers included United Fruit – which sent more money off the islands that invested in the islands for the people; the laws have evolved that made working with tax havens much easier. For example transfer pricing is a legal method and very well used in the corporate world. The company sends money to a subsidiary in the tax haven; since it is to legal to deduct interest for loans and mispricing results. A example is the subsidiary charges $100 for what costs $ 2 in the home country. The money is in a tax free country and kept on the books of the company. The the tax rate is lower and the corporation maintains more of its wealth. The real point is the money really never went anywhere, never added any more value. The issue becomes if Canada is operating like a Tax Haven why would any company pay their fair share and what is a fair share now days?

Linking to dividend paying stocks, as investors we expect company treasurers to take advantage of the legal loopholes given by the country. We want the company to be profitable and pay the dividends and we keep more because of the lower rate of taxation. When the amounts get to be too much, as individuals you wonder if the system we have is right for our home country? or is this the way it is?

There are more questions than answers, till the next time – to raising questions.