Federal pension board used offshore 'scheme' to skirt foreig

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Federal pension board used offshore 'scheme' to skirt foreign taxes

[ http://www.cbc.ca/news/politics/federal ... 24959?cid= ]

Civil servants' pension assets routed through complex web of corporations in Luxembourg

By Zach Dubinsky, Harvey Cashore, Frédéric Zalac, Verena Klein, CBC News Posted: Nov 05, 2014 4:00 PM ET| Last Updated: Nov 05, 2014 4:37 PM ET

The federal agency that invests civil servants' pensions set up a complex scheme of European shell companies and exploited loopholes that helped it avoid paying foreign taxes — a move that could undermine Canada's standing internationally as its allies try to mount a crackdown on corporate tax avoidance.

The arrangement involved two dozen entities, half of them based in the financial secrecy haven of Luxembourg, and all of them set up in order to invest money in real estate in Berlin by a Crown corporation called the Public Sector Pension Investment Board. [ http://www.investpsp.ca/en/about-profile.html ]

The blueprint for the tax-avoidance plan was obtained by the Washington-based International Consortium of Investigative Journalists and shared with CBC News as part of a larger leak of records exposing hundreds of corporate offshore schemes set up to capitalize on advantageous tax and secrecy rules in Luxembourg. [ http://www.icij.org/project/luxembourg-leaks ]

Some of those leaked documents were first reported on in 2012 by Edouard Perrin for France 2 public television and by the BBC [ http://www.bbc.com/news/business-17993945 ], but most of them have never before been analyzed by reporters.

While the Canadian government corporation's transactions were not illegal, a senior German tax official who reviewed them said the pension investment board had used "a very aggressive way to avoid taxes."

"The only goal is to avoid taxes," Juergen Kentenich, director of the regional tax office in Trier, Germany, said of the tangle of Luxembourg companies.

The loopholes that were exploited were legal, he says. "But is this fair? Should a reputable and decent businessman do something like that? That's another question."

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CBC reporters tracked those companies to an address in Luxembourg, where two staff rent desks in a shared office and oversee $700 million in civil servants' pension assets.

The revelations come as the Canadian government asserts it is fighting the very kinds of complicated, abusive tax practices that see multinational corporations route their profits through letterbox companies in tax-friendly jurisdictions. Just on Monday, Revenue Minister Kerry-Lynne Findlay told the House of Commons: "One of our government's key areas of concern is the issue of international tax evasion and aggressive tax avoidance." [ http://www.parl.gc.ca/HousePublications ... Id=6756911 ]

Finance Minister Joe Oliver and his predecessor, Jim Flaherty, made similar declarations in recent years, as they touted measures to let the Canada Revenue Agency go after more tax from money held and moved offshore.

Canada has also pledged to crack down on international tax wizardry as part of wider efforts on this front by the Paris-based Organization for Economic Co-operation and Development [ http://www.cbc.ca/news/business/oecd-ou ... -1.2768053 ] and by the G20. [ http://www.cbc.ca/news/business/g20-lea ... -1.1699277 ] Canada is a member of both groups.

"I think this is hypocritical," German opposition MP Gerhard Schick said of the Canadian pension board's tax planning. "Our governments should work for better rules, but they should also, in the companies they control, make sure that they are not part of the problem and avoid taxes as aggressively as private investors do."

Dalhousie University tax law professor Geoffrey Loomer agreed, saying the pension board's explanation that it follows all applicable tax laws is "the completely standard response given by the likes of Apple, Google, General Electric, Amazon, every multinational pharma corporation, every multinational financial institution."

"I have a problem with the hypocrisy of a government entity engaging in tax avoidance," Loomer said, "while the CRA, OECD and G20 are routinely criticizing 'aggressive tax planning.' "

If you have more information on this or any other story, email us at investigations@cbc.ca .

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