Some Canadian companies have used Luxembourg as a “tax haven,” over the past decade to avoid paying domestic taxes on billions of dollars in profits, a Quebec research institute says.
A recently published paper by Montreal-based IRIS found that 59 Canadian companies—33 of which were headquartered in Quebec—transferred $119.8 billion in net profits to Luxembourg between 2011 and 2021 to take advantage of its low tax rate. During the 10-year period studied, transferring of profits rose an average of 20 percent annually.
Study co-author and IRIS researcher Colin Pratte said Luxembourg was chosen for the company’s research project because it makes financial information publicly available, unlike other tax havens. Pratte told The Canadian Press that the study couldn’t capture the entire tax avoidance picture because it deals with only one tax haven. He also said they may not have received a complete list of Canadian companies operating there.
Companies using Luxembourg as a tax haven transfer money through a process known as intra-group debt, permitting money to be loaned between subsidiaries in different countries, the study found. This increases a company’s debt and interest costs while lowering its taxable income in its home country. While the tactic is not illegal, the researchers said it violates the “spirit” of the law.
The companies listed in the study operate in a variety of sectors from finance and insurance to technology, natural resources, and food. The finance and insurance sectors alone represented nearly one-third of Canadian assets registered in Luxembourg while the technology sector represented a quarter of total assets.
