Nearly 22 billion in profits transferred from Quebec to Luxembourg, a tax haven, in 10 years

Nearly 22 billion in profits transferred from Quebec to Luxembourg, a tax haven, in 10 years
Nearly 22 billion in profits transferred from Quebec to Luxembourg, a tax haven, in 10 years

27 Quebec companies — out of the thirty present in Luxembourg — transferred nearly 22 billion in profits in 10 years to reduce their tax bill, according to a study.

-based Bausch Health, Couche-Tard, MindGeek, CGI, Great West / Power Corporation and Saputo are among the 27 Quebec companies that declared profits totaling 21.7 billion in Luxembourg from 2012 to 2021, according to unpublished data reported in the part of a study to be unveiled this Thursday by the Institute for Socioeconomic Research and Information (IRIS). They are among the 59 Canadian multinationals — 33 of which have their headquarters in Quebec — which have transferred, from 2001 to 2022, nearly 120 billion dollars to this European country almost half the size of the Montreal Metropolitan Community. but with very advantageous tax rules.

With rare exceptions, none of these companies carried out real economic activities capable of explaining even a fraction of these profits, explains IRIS. Rather, these were accounting operations aimed solely at reducing their tax bill in an artificial, although perfectly legal, way.

In the case of Saputo, for example, its subsidiaries in Luxembourg would have managed to generate nearly 32 million in profits in 2021 while costing it only $8,700 in salaries. The Canadian Restaurant Brands International, owner of Burger King and Tim Hortons, presents an even more absurd situation, with net profits of almost 13 billion, even though it has no employees on site and there would be a limit to the number of donuts or burgers that a country of only 640,000 inhabitants can ingest.

Accounting acrobatics

At the Quebec pharmaceutical Bausch Health, formerly Valeant, the maneuver consisted of entrusting six subsidiaries based in Luxembourg with the task of making the rest of the company pay for the rights to use its own intellectual property.

For the American company Waste Connections, which notably owns the largest technical landfill site in Quebec, in Terrebonne, it involved, for example, granting an interest-free loan to one of its three Luxembourg subsidiaries that the latter would in turn lend, this time with interest, to other subsidiaries of the group. Saputo, Cogeco Fiera Capital, Uni-Select and Laurentian Bank have all used this well-known strategy of “intra-group debt”.

In all cases, it was a matter of reducing the company’s profits as much as possible in countries, such as Canada or the United States, where taxes are higher and of increasing them where tax rates taxation are lower, or even zero. Once this step has been completed, the company can take advantage of some 84 bilateral tax agreements signed by Canada – notably with Luxembourg – to avoid double taxation for companies and repatriate free of charge the profits thus made by its subsidiaries based in tax havens. to the parent company.

From 2011 to 2021 (the most recent full year), net profits declared in Luxembourg by Canadian multinationals did not decrease — despite the fight against tax avoidance that they said they wanted to lead — but increased on average by 20% per year, calculated the IRIS. Out of a total, for the period, of nearly 120 billion in net profit, more than a third (37%) is attributable to companies in the technology sector, followed by finance and insurance (15.5%), food (13.3%) and manufacturing and industrial (7.4%).

240 billion per year

IRIS would not have been able to learn all this if, in the wake of the LuxLeaks scandal, Luxembourg had not been forced by other European countries to lift part of its banking secrecy and make the statements accessible to the public financial and other accounting documents of companies established in its territory. This made it “one of the least opaque tax havens in the world”.

But as this data does not generally specify the nature or origin of the funds held by the Luxembourg subsidiaries of Canadian companies, it is not possible to establish the extent of the tax losses they suffer, explain the two authors of the study, Colin Pratte and Sophie Elias-Pinsonnault. The applicable tax rates are not always the same depending on the type of income, for example, and the funds may not all come from Canada.

In its most recent report, the specialized NGO Network for Tax Justice placed Luxembourg fifth among the “largest contributors to the global problem of tax havens”, behind the United Kingdom, the Netherlands, the Cayman Islands and the Saudi Arabia and ahead of Bermuda, the United States and Singapore. According to the OECD, tax losses incurred through tax avoidance by multinationals amount to between US$100 and US$240 billion annually. In Canada, this amount would amount to 1.4 billion.

Most of the names of Quebec companies involved had already circulated in other reports in the past. Once again, there is no question of “tax evasion” in the IRIS report, but rather of “tax avoidance”, that is to say “aggressive tax planning” which seeks to take advantage of the maximum of tax competition in which States engage among themselves and according to national and international rules.

Northvolt

This sometimes places governments in strange situations, such as granting generous subsidies to companies which themselves seek, for their part, to do as little as possible to finance the missions of the State, notes the study of IRIS. She cites the case of the Swedish Northvolt, which must receive 7.3 billion in public funds from the federal and Quebec governments for a battery cell factory in Montérégie and which kept 637 million in assets in Luxembourg last year in one of its subsidiaries. In the case of the German Volkswagen, which will be entitled to aid from Ottawa and Toronto of 16.3 billion for another battery factory in Ontario, there is talk of almost 60 billion euros in assets at the Luxembourg.

What this shows is that “tax avoidance still takes place, despite the multiple efforts and promises of Canada and the OECD,” conclude the IRIS researchers, who intend to put the whole documents on which their study is based. And “a sign of a certain feeling of impunity, this greater transparency [offerte par le Luxembourg] does not seem to prevent large holders of capital from continuing to practice, now in plain sight, the avoidance strategies observable in their Luxembourg financial statements. »

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