How did a province become a tax haven? | Kyle Beckerman

A lower court ruling was overturned after Loblaw declined to fight for an appeal, suggesting the high court would uphold it

The Canadian courts have ruled that Loblaw bought Barbados properties and services at a lower price than it should have under the Barbados tax regulations.

A federal court judgment awarded Loblaw $103.5m in damages after Barbados originally ruled that Loblaw should have paid about $90m more in taxation on the transactions, but the corporation chose not to appeal.

The Prime Minister of Barbados cited this judgment in parliament, where he announced that the island would levy a 5% corporation tax on all international deals and hold a special meeting to make it clear that “companies should only be allowed to import goods made by people in Barbados from Canada and the UK, and only for Barbados and their own goods”.

In a statement, Loblaw said: “The Barbados tax authorities have consistently pressed enforcement of Barbados’ laws in contravention of international and domestic tax rulings and rulings by legal counsel to the public authorities of Barbados.

“This is consistent with the conduct of the Barbados government for many years which has repeatedly sought to encourage foreign investment in Barbados by imposing policy and administrative restrictions on investment which jeopardise the legal and political stability of Canada and other countries.”

[Public Enemy:] $2m in charges, hang out!

Hogan: This is an oil company

Louise: Wait, do we have a closing price?

(hangs out)

[Public Enemy:] Money in, money out. Just like …

[transit into accounting]

Hogan: A private firm. Not a government. Still not answering my questions.

Louise: How much did they pay me for our things?

The Barbados parliament is debating the bill this afternoon. Whether this will have any effects on multinationals wishing to extract profits from Canadian subsidiaries remains to be seen.

Previously the lowdown: It all started over one coffee, Richards

Corporate tax arbitrage came to the limelight in 2003 when the former Labour premier of Newfoundland, Brian Tobin, announced that the province would cut corporate taxes so that businesses could pay employees lower wages. Not enough local residents shared his vision, so Tobin added an extra tax on houses.

“The initial public response was essentially ‘we don’t need you to do this,’” Tobin told me for my book Top Dog.

A journalist in Cochrane, Alberta, called to write a story about the move. “I wondered what might happen if we did reduce the corporate tax.”

He asked Tobin if he would pay the house tax. “The example is there,” Tobin replied. “You, like a reader, call and say, ‘Would you pay the mortgage on my house?’” The journalist then got a “pretty cool looking degree from Abertay”.

This is how Abecedarian University taught us to talk with each other.

Tobin’s argument was that his corporation’s added cost of mortgage payments would benefit Newfoundland’s people. This concept of supply and demand is still at the heart of the tax debate: companies that create demand will, in theory, bring those with the means to consume to the table, and companies with the lowest prices will bring in the very low-income people who need support the most.

Politicians in other countries are facing this same problem, as well. Over a decade ago, the prime minister of France, Dominique de Villepin, was roundly lambasted for proposing an extra tax on expats. The idea was based on supply and demand theory. If prices were high, companies would leave. High demand would prompt companies to leave the country to find cheaper labour.

He faced an instant backlash from global corporations, and the tax became law.

It all started over a cup of coffee, Richards

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