The Institute for Socio-Economic Research and Information (Iris), a non-profit organisation established in 2000 in Quebec, a detailed report on Thursday 2 November 2023, shedding light on the extensive tax evasion activities by Canadian multinationals in Luxembourg.
Using accounting information from 280 subsidiaries in Luxembourg, the report unveiled a decade-long trend of profit transfers and tax evasion practices, offering an unprecedented insight into these financial manoeuvres.
Profit transfers
The study revealed that, over the past 10 years, 59 Canadian companies, 33 of which are headquartered in Quebec, shifted a staggering €81bn (CA$119.8bn) in profits to Luxembourg. This phenomenon experienced an average annual increase of 20% between 2011 and 2021.
The report highlighted that Thomson Reuters, Restaurant Brands International (Burger King and Tim Hortons), Bausch Health Companies, Banque TD and Magna International were the five biggest multinational companies declaring net profits in Luxembourg during the study period, making up 78% of all profits moved to grand duchy.
Colin Pratte, a researcher at Iris and co-author of the study, pointed out that the recent tax reforms initiated by the organisation for economic co-operation and development have not been effective in curbing aggressive tax planning by these Canadian multinational corporations.
Food sector
The report also scrutinised tax practices within specific economic sectors, including the food industry. It found that all the multinationals listed are part of sectors that encompass food production and distribution. Notably, 25% of the profits transferred to Luxembourg in the last five years were associated with the food sector.
Sophie Élias-Pinsonneault, an associate researcher at Iris and co-author of the study, highlighted the equity concerns of such tax evasion practices, especially in times of inflation. She emphasised that these practices lead to unfair competition, disadvantaging smaller players and disproportionately affecting individuals already burdened by food price inflation.
Tax evasion and public funds
The Iris study also brought to light the issue of companies engaging in tax evasion strategies while simultaneously benefiting from public subsidies.
Pratte noted the stark contrast between Canada’s approach and that of countries like France, Denmark and Poland, which have restricted companies operating in tax havens from accessing pandemic-related public financial aid.
For instance, CAE Inc, a Montreal-based multinational in the aeronautics sector, transferred CA$99.2m to Luxembourg in 2020-2021, the same year it received CA$115.7m from federal covid-19 wage and rent subsidies for businesses. Additionally, Northvolt’s Luxembourg subsidiary amassed assets totalling CA$637.6m in 2022, and the company is poised to receive up to CA$7.3bn in public funds for a battery factory project in Montérégie.
Pratte underscored the reprehensibility of tax evasion practices, especially during social crises when support from the private sector to the state appears to be one-sided.
Historical context
The main tax avoidance strategy highlighted in the report involves artificially inflating a company’s debt to amplify its interest costs, leading to a reduction in taxable income through ‘intra-group debt’. This strategy, however, is not new and was the subject of a 1992 report by the auditor general of Canada, followed by a bill in 2007, which ultimately succumbed to pressure from the concerned companies and was repealed.
Élias-Pinsonneault concluded the report by stressing the tangible impact of tax havens on people’s lives and reiterated that solutions have been available for over three decades. She called for immediate action to address these longstanding issues and respond to the major crises of our era.
The full report is available .