Ottawa vows to lift corporate secrecy in bid to stop tax evasion and money laundering
Finance Minister Bill Morneau says new rules will soon require Canadian company owners to identify themselves in government filings - but he will not yet commit to making the names of corporate owners public.

thestar.com
By MARCO CHOWN OVED and ROBERT CRIBB
July 18, 2017

Federal Finance Minister Bill Morneau says secret corporate ownership in Canada will soon end with new rules compelling Canadian company owners to reveal themselves in government filings - a public policy move widely viewed as crucial in the battle against tax evasion and money laundering.

But he would not commit to making the identities of Canadian corporate owners public.

“In order to get at the understanding of who owns what, there’s really no other way to get at this,” Morneau said an interview with the Star on Tuesday, vowing to lead a national initiative that will eventually require actual company owners - or “beneficial” owners - to list themselves in their corporate registrations.

“We believe that this is important information to have to understand how people are arranging their affairs and to ensure that we’re not allowing people to inappropriately use corporate structures for tax avoidance.”

While public corporate registries in Canada must include a list of directors, it is easy for beneficial owners to retain anonymity by hiding behind figureheads, lawyers and numbered companies.

As it stands in Canada, it is possible to register a corporation, open a bank account, and send and receive money overseas all without disclosing one’s name - the same kind of secrecy offered by traditional tax havens.

A Star investigation earlier this year detailed how Canada’s corporate secrecy has been identified internationally by an industry of tax avoidance experts who now sell this country as a safe place to hide wealth, free from prying eyes.

On dozens of global websites, the Canadian flag is used to entice foreigners seeking anonymous companies fronted by nominee directors that can be set up overnight and used to hide wealth without the stigma that comes with traditional tax havens - a service called “snow washing.”

Even the governments that collect corporate registrations in Canada don’t know the identities of beneficial owners at the helms of the corporations they regulate.

Changing that will require consensus among the 10 provincial finance ministries, which oversee about 90 per cent of all corporate registrations in the country. (The federal corporate registry contains only about 10 per cent of the national total.)

“When I came into this office, this (issue) was a challenge to get people to think about because they pointed out correctly that the issue...is a constitutional one, because you’ve got the reality that this is provincial jurisdiction in the case of 90 per cent of the corporations,” Morneau said.

“My response was that that is not a good enough answer and we need to get at this.”

In three separate meetings with his provincial finance counterparts dating back to last year, there has been strong support for change, he said.

“I will tell you that everyone else around the table understands...how important this is for the country,” he said. “I’m not experiencing any resistance from any quarters...We are going to make progress on this. This is going to be an agenda item at every one of my (federal-provincial) meetings and I hope and expect that we’ll have a more concrete set of timelines and deliverables by the next time that we get together.”

Britain is the international model for beneficial ownership transparency. Last year, the country launched a public beneficial registry that requires owners to identify themselves.

It is now a publicly searchable website that details each company’s owners and directors, their months and years of birth, nationalities, countries of residence, mailing addresses and dates of appointment, along with the corporations’ annual financial returns and filing history.

Law enforcement officials in Britain and beyond have hailed the registry as a breakthrough tool in helping investigators, accountants, investigative journalists and the public conduct due diligence on corporate activities including illicit wealth movement, money laundering, corruption and offshore tax evasion.

Morneau is not prepared to go that far.

“I’ll have to get back to you. There are obviously always going to be privacy concerns. We haven’t yet crossed that Rubicon with the provinces,” he said. “I haven’t yet got a complete consensus even in the federal government with the privacy issues, but they are significant.”

The objective, he said, is a system that deters tax avoidance, not a system that “allows people to pruriently look into their neighbours’ affairs.”

Morneau’s comments follow Tuesday’s release of a 63-page plan, first reported in the Star, detailing proposed reforms that would target “unfairness” in Canada’s taxation system benefiting the wealthy.

The reforms are designed to close regulatory gaps being legally exploited by sophisticated Canadians using private corporations to lower their tax burdens.

Among those strategies being exploited: “sprinkling” income among family members in private corporations in order to take advantage of lower corporate tax rates; holding income in passive investments inside a private corporation in order to benefit from lower tax rates than would be imposed on individuals; and converting a private company’s income into capital gains, which are taxed at a lower rate inside a corporation.

There are about two million private corporations now in Canada - an eightfold increase from the 240,000 that existed in 1972, Morneau said. Their share of gross domestic product has doubled in the past 15 years.

Knowing who is behind that ballooning number of corporations is part of the government’s wider strategy to root out tax avoidance, he said.

The Star’s reporting on tax avoidance and evasion has also highlighted the role that international tax agreements - many with traditional tax havens such as Barbados, the British Virgin Island and Panama - have played in the movement of Canadian wealth offshore.

Morneau said the government’s strategy will address abuses of those agreements.

“We are going to try to find ways to ensure that people aren’t taking that constructive business relationship we have with Barbados and turning it into a tax advantage,” he said. “That requires us to do some work. We’re going to do that work. But we’re not going to throw the baby out with the bathwater.”