British Columbia’s Business Temptation: An Opaque Array of Tax Breaks

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[BC ELECTION 2017. Again, we have to depend on the foreign press to tell us what's going on in BC and how bad it all looks from a global perspective. *RON*]

Dan Levin, New York Times, 2 May 2017

A view of Vancouver, British Columbia. The province set up tax initiatives for businesses in hopes of creating jobs, but government data suggest that companies have profited more than citizens. Jeremy Bittermann for The New York Times
VANCOUVER, British Columbia — British Columbia is well known for its spectacular landscape and outdoorsy living, its swanky urban real estate and bouillabaisse of cultures.

A fact not so well known? It has a sweet deal for businesses, offering them tax breaks in an unusually opaque arrangement.

Like many places, British Columbia set up a system of tax incentives to lure businesses to the far western Canadian province in the hopes of creating jobs and transforming Vancouver into a global financial center.

But if the program has been good for business, it’s been less beneficial for British Columbia.

Participating companies have created few jobs, according to government figures, while more than 140 million Canadian dollars ($106 million) have been doled out in tax refunds since 2008, when the initiative was expanded.

The incentives operate under a cloak of secrecy that is unusual for similar efforts in Canada and the United States, critics say. The province will not name the companies that get the breaks. The only information available about them is on the website of a nonprofit that promotes the program.

“This is essentially a temporary foreign-worker program for the rich, with secret government subsidies for multinational corporations,” said Dermod Travis, the executive director of IntegrityBC, a nonpartisan political watchdog group based in Victoria, the provincial capital. “The government is selling B.C. as a tax haven for the global elite to park investment here, but not have to contribute.”

The provincial Ministry of Finance, which runs the effort, says it is a success, with 82 companies participating. Jamie Edwardson, a spokesman for the ministry, declined in an email to identify those companies or discuss the amount of refunds each has received, citing a ban on publicly disclosing taxpayer information in the law that created the incentives. He said the law protects taxpayer privacy.

At one point, the tax breaks were projected to create more than 13,000 jobs in British Columbia. According to ministry figures, though, fewer than 300 have been created as a result of the program, and possibly as few as 122.

To illustrate the plan’s success, Mr. Edwardson pointed to decade-old data in a consultant’s 2009 economic analysis, which estimated that between 2001 and 2007, the additional investment added anywhere from 124 million to 141 million Canadian dollars — between $91 million and $103 million — to the economy. Mr. Edwardson said these figures were the most recent available.

Experts say that with few public details, it is hard to tell whether the plan is worth the lost tax revenue. They also say the lack of disclosure prevents the public from knowing if companies are using the province as a pit stop on a global quest to avoid taxation. “There’s a real concern corporations are just stripping money out of places,” said Michael Knoll, a law professor and a director at the University of Pennsylvania Law School Center for Tax Law and Policy. “This lack of transparency is aiding that process.”

The secrecy is unusual, experts say. A comparable tax-incentive plan in Montreal makes more information public, records show, including the names of participants.

In the United States, it is standard practice for state governments to release the names of companies receiving targeted tax breaks, including credits and rebates. Most states also share other information about participants that British Columbia does not, like the amount of money each company has invested and where that investment has gone, along with what the state has received in return, said Greg LeRoy, the executive director of Good Jobs First, an American nonprofit that tracks state tax-break programs.

The International Business Activity Act, initially passed in 1988, allows companies to claim a refund of up to 100 percent of their provincial corporate income taxes on a number of business activities, including lending, foreign exchange trading and investment management, which could bring a company’s tax rate down to 15 percent.

Colin Hansen, center-left, then finance minister of British Columbia, in 2009 with the province’s premier, Gordon Campbell. Mr. Hansen is president and chief executive officer of AdvantageBC, which advises its members on tax breaks. Jonathan Hayward/The Canadian Press, via Associated Press
Over the years, the plan was expanded several times. In 2010, an expansion allowed high-paid nonresidents of Canada who work in British Columbia for participating companies to receive new generous tax breaks unavailable to Canadian residents.

The tax breaks favor foreigners in other ways, too. Companies can receive refunds on real estate activities with foreigners, including mortgage loans on property in Canada for international buyers. Conducting the same domestic activities for Canadians would not qualify for the refunds. This has raised concerns that the tax refunds may encourage banks and other companies to prioritize foreigners over Canadians in Canada’s overheated housing markets.

The ministry runs the program. But the law that set it up requires participants to join and help finance a nonprofit, AdvantageBC, established in 1986 to promote British Columbia as a business destination. AdvantageBC advises its members on how to benefit from the tax breaks. The involvement of this group has also become a target for critics.

“There is no reason for this organization to be outside of government,” said Duff Conacher, a founder of Democracy Watch, a Canadian civic organization, “except to escape the ethics, transparency and accountability requirements government institutions have to face.”

Colin Hansen, a former provincial finance minister who helped expand the program’s tax incentives in 2010, is president and chief executive of AdvantageBC. He defended the group’s involvement in the tax-break program. “On all issues, we are fully accountable to our members, which is where that accountability should be,” he said in an email.

As finance minister, Mr. Hansen repeatedly declared that expanding the program would help attract companies doing international business and “create those jobs in British Columbia.”

In a recent interview, though, he said that its goal was really to enlarge the local financial services sector. “The program was not actually set up to be a job creator,” he said.

Mr. Hansen said most of the companies listed as “core members” on the group’s website were registered in the program. But he also said that some companies joined the group before seeking the benefits. He declined to provide a complete list of businesses. “Some companies are a little more sensitive about being included,” he said.

It is unclear which businesses listed on AdvantageBC’s website are in the program and receiving tax breaks. But a company must be a core member to get the refunds.

Provincial officials have praised the tax breaks as a boon to economic ties between China and British Columbia, and have devoted significant time and political capital in recent years to tailoring it to Chinese investors and the financial institutions that cater to them.

In 2014, the province expanded the program for foreign banks, which it said would raise the potential for investment from Asia, especially China. “These amendments to the International Business Activity Act send a strong message to foreign companies that B.C. welcomes their business, setting the stage for increased investment,” said Michael de Jong, the finance minister, according to a government news release.

Mr. de Jong declined to answer questions about the program, including whether the public should be able to know which companies are receiving the tax breaks.

Several of the businesses listed on AdvantageBC’s site are Chinese, including the Bank of China and a subsidiary of China Poly Group, a Chinese state-owned conglomerate. The companies did not respond to requests for comment on whether they had received any tax breaks.

PacNet Services Ltd., a payment processing company, had been a core member of AdvantageBC since at least 2006. In September 2016, the United States Treasury Department listed PacNet as a significant transnational criminal organization for its “lengthy history of money laundering,” and froze the company’s American assets. The company has denied the accusations. Rosanne Day, PacNet’s president, declined to comment on whether the company was in the tax-incentive program and has received benefits.

After inquiries by The New York Times, PacNet, two associated companies that have also been sanctioned and several other firms were removed from AdvantageBC’s website last month. Mr. Hansen later said they were no longer members.

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