How Barbados Became Canada’s Favourite Tax Haven

It was back in 1980 that the House of Commons debated a legislative rule that has changed Canada’s economy in a big way. The bill ratified a series of treaties dealing with tax between Canada and other countries including Spain, Austria and Italy.

The list of countries also included one island country that would change the way some Canadian companies viewed taxes. Barbados, known for its pristine beaches and scuba diving spots became a tax haven.

A tax haven is basically a country that offers foreign individuals and businesses a minimal tax liability in a politically and economically stable environment, with little or no financial information shared with foreign tax authorities.

At the time the bill was being discussed critics did point out that the consequences of signing a tax treaty like the one with Barbados would reduce the tax rate for Canadian companies that operated abroad quite severely.

Critics also argued that the tax treaties could impact domestic taxation and an average citizen would have to bear the taxation brunt. However the protests dint stop the bill, the house passed with the assent of Liberal and Conservative MPs and it became law in a short while.

In the present day Barbados takes the Number 3 spot for Canadian money going abroad behind the U.S and U.K. More than $80 billion dollars has been moved to Barbados by wealthy Canadians and companies over the years. There is more Canadian money parked in the tiny island of Barbados than Germany, Italy, Franc e Japan and Russia put together.

Barbados is where Canadians first started their offshore, legal tax avoidance. Big companies have had affiliates there for years and Canadian banks have had their branches there too. It became like an entrance to an offshore network and companies created subsidiaries there just to help them transfer money.

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Another main reason that Barbados was preferred was the corporate tax rate, which was lower than 2.5 percent. Once the small amount was paid any profits earned at a subsidiary on the island could be brought back to Canada tax-free.

Canadian companies are not the only ones going the tax haven route, Apple routes its non U.S profits through Ireland into the British Virgin Islands, and Google’s choice haven is Bermuda. In what has been a major revenue loss for the Canadian government, the nation’s favorite has remained Barbados.
The tax haven tactics used to companies to shrink their tax bills have been discussed multiple times with Auditor General Denis Desautels even dedicating an entire section of his 1992 annual report on the issue. While the parliament did hold hearings regarding the issue no measure was taking to shut down the free flow of money into Barbados from Canada.

It does not seem fair that while people who have the means to pay the taxes are evading it by just be shrewd enough to reroute it to other jurisdictions average citizens become burdened with taxation. It is now time for the government to act on this to prevent the huge load of taxation on average taxpayers.

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