A must read. “Are Tax Havens robbing the government of P3 revenue?”

Posted on by Laila

There are a couple of people who I really admire and follow with regards to their work on  P3’s in the province, among other items of concern. One is Erik Andersen , who in the embedded link talks about the potential for BC reaching our own fiscal cliff, and Keith Reynolds, who has written more about P3 projects than anyone else.

For newer readers, Public-private partnerships are a method of financing and building a project whereby a private corporation – usually a team of them – is selected to build a government project, and  also finances it all up front.

The government then pays that private partner back over a long period of time, along with very lucrative payments and interest, and that make P3’s  a very popular investment vehicle for many investment funds – the Sea to Sky highway project has been sold once already  to a new investor : https://lailayuile.com/2010/12/22/sea-to-sky-highway-changes-hands-as-macquaries-essential-asset-partnerships-sells-100-of-their-stake-in-the-project/

While the Liberal government has greatly endorsed the use of this manner of financing and building many projects, in particular highways and bridges, critics including myself have great concern over the amount of debt that it obligates the province to re-pay. The province doesnt actually consider it debt though, and it is not reported as debt, but rather ” contractual obligations” .   I’ve compared it to your mortgage, which is also a contractual obligation… but if you tried to tell a credit card company it wasnt debt, they would laugh at you.

It is debt, under another name, and those P3 payments over time, over multiple projects, have nearly bankrupted other countries and many countries have now stopped using this method because of the burden it places on the government over time, in paying back those debts.

Now Keith Reynolds has brought forth another strong concern – the  new owners of two P3 projects in BC are companies that are located in countries that are tax havens… and this may have a strong impact on the amount of taxes they should be paying to our province.

Here is an excerpt:

“If P3 infrastructure is operated by the government or its agencies, then the operator does not pay taxes to the federal or provincial governments.  But a private sector operator does pay taxes and these taxes are factored into the equation that decides whether or not to use a P3.

…

But what happens if the tax revenue predicted from the P3 project doesn’t materialize? That means the province does not get the expected revenue, which is a big deal in cash strapped British Columbia. It also means that the comparison used to decide whether to use a P3 to do the project publicly was biased against public operation because of overly optimistic revenue expectations from the P3.

One of the ways companies cut their taxes is by moving their headquarters to tax havens.  Instead of claiming their profits in the country where they actually deliver services profits are claimed in the tax haven and taxes are paid at much lower rates.

…

Here in British Columbia there is complete silence on the issue from both the government and the media. The Ministry of Finance in response to a Freedom of Information request asking about the impact of tax havens and P3s said “although a thorough search was conducted, no responsive records were located. Your file is now closed.”

In a nutshell, the public private partnerships are already creating a sizable debt load in this province and when projects are flipped, losing valuable tax revenue to offset that debt is a huge liability.

But I’m pretty sure the government doesn’t want you to know, or understand any of it …. and that’s why you have to read the full post here http://www.policynote.ca/are-tax-havens-robbing-the-government-of-revenue-from-p3s-nobody-seems-to-care/

I’m more than willing to answer any questions you have, as I am sure Keith is, to help you understand why this is such an important issue for the financial future of our province.

Then, go and read the top post of 2012 on this site: https://lailayuile.com/2013/01/02/the-top-post-of-2012-on-lailayuile-com-how-money-and-corruption-are-ruining-the-land-originally-posted-june-19th-2012/

18 thoughts on “A must read. “Are Tax Havens robbing the government of P3 revenue?””

  1. So much to learn… please help me, Laila!

    Are you saying that if a P3 operator had its head office in Washington State (or other ‘friendly’ foreign land, for example), they would be paying taxes back to BC and Canada when we paid them their “mortgage” payments? If that’s the case, I can see why slimy operators would go for a tax haven.

    Next question: if the government operates the P3 project (such as the Port Mann) … we just send tax-free money to the companies that were part of the project?

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  2. Exactly – the payments we make to them are revenue for the private partner, therefore subject to applicable taxes here in the province, and Canada. For this purpose, Keith looks at how this impacts BC, because we already have reduced revenues from other streams like LNG.

    A tax haven is a politically and economically stable country where taxes are levied at a much lower rate or most often, not at all – offering a haven for corporations and people wanting to avoid paying taxes. As well, they dont share their information with foreign governments generally, which offers a good degree of secrecy to what is going on there.

    Note how HSBC plays into this story… Macquarie is an expert in offshore holdings and accounts.

    The Port Mann is NOT a p3 project, it is a government operated and financed project – entirely public.

    The tried to make it a p3, but the chosen consortium could not get financing and agreeable terms for the province, so it became a public project. Kiewits payments are also considered revenue, and subject to taxes as well. However, because in a P3, the payments are spread out over 25-30 years, losing that revenue from any taxes owing would be a big concern over multiple projects if the new owners use tax havens to avoid paying taxes!

    This is still new to me, and I will be doing my own research on this, but certainly if other governments are already concerned about it – the UK and Australia have been using P3’s far long than BC – if our provincial government was interested in due diligence, they should be actively looking at this.

    Considering the insidious relationships I shown between corporations and the BC liberals, I doubt they would even care. It would be absolutely important for any new government coming in to pay close attention and pay this topic some close attention to see how much revenue we might be losing.

    Certainly, this current lot in Victoria might be more inclined to need those stick figures in powerpoint presentations to understand all of this….

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  3. Oops… yes, I slipped up on the Port Mann (no, not because of the ice bombs).

    On the Sea-to-Sky: is the province seen as the operator, or is the operator the maintenance contractor?

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    1. It’s all good G – a lot of people still think it is a p3, so I’m not surprised – I even saw a media report recently during the ice bombs that referred to it as a P3.

      Ultimately, the province must take accountability for all these projects, but on a P3 like the sea to sky, or Kicking Horse Canyon, or William R Bennett bridge the private partners that maintain and upkeep are technically the operators of the project.

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  5. Laila:
    I still say that regardless how they invested our money, ICBC has 10 billion, (With a B) in their coffers. So I suggest any, road projects such as the Port Mann be financed by ICBC and then possibly over time paid back through tolls. My goodness it is my understanding that most of the dollars collected by the RCMP through speeding ticket, seat belts and such go to ICBC. Goodness if this is true, the once pride of Canada is now a sort of a tax collector for an insurance company.

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    1. Traffic fines have always been a form of tax collection.
      If you want people to stop speeding.
      Do like Nova Scotia does.
      First speeding offense. License revoked for 1 week.
      Second speeding offense within 1 year of the first offense. License revoked for 6 months.
      Oddly enough people dont speed like they do here….. I wonder why?
      AND they have private car insurance that charges less than HALF what we pay for a similar car. You’re not subsidizing your neighbours 16 year old brat in a “Fast and Furious” crash.
      ICBC=Cash Cow for the govts general revenue…….
      Always has and always will be a huge source of cash for the govt.

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  7. IT IS VERY FRUSTRATING TO ME, BOTH ICBC AND WCB MAKE AND ENFORCE LAWS. UNELECTED INSURANCE COMPANIES WITH MORE POWER THAN OUR ELECTED. IF YOU DON’T BELIEVE THIS, ASK A POLITICIAN TO CHECK ANY RULING MADE BY WCB. THEY WILL TELL YOU THAT THEY WILL NOT INTERFERE WITH WCB’S RULING. BOTH THESE INSURANCE COMPANIES ARE SIMPLY AN ENTITY UNTO THEMSELVES.

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  8. There definitely is an aura of silence in Victoria regarding P3’s. Having read all the above articles you referred to it becomes obvious to follow the money. Somebody is putting cash into somebody’s pocket somewhere along the line. The ‘Bidding’ process is definitely flawed. What to do?

    I personally just fired off an e-mail to my Legislative Representitive who happens to be NDP, who have been extremely silent on any issue. Using cut and paste of the articles and some of your comments and a strong indication that there is a rising group of citizens who want answers and if we don’t get them our votes will go elsewhere. I asked him to answer what ‘He’ will do to implement policy if his party does not have a current policy regarding P3’s. It will be interesting to see his reply, if there is one. But if there is no reply that is ammunition for me on the next e-mail bringing up another concern.

    Again, and again I strongly urge people to do the same, flood these constituent offices with e-mails, letters, phone calls demanding responses. Also remind them who votes for them. Also, congrats. on your new gig with ’24’. Don’t totally destroy your opponent, leave her hope to debate another day.

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  9. The bidding process is horrifically flawed, and there is evidence that despite rigourouse procurement guidelines, that the government often ignores its own rules…. That Tercon case was a real eyeopener for many people… and think how much that one case cost the taxpayers to defend the governments egregious behavior! It bordered on criminal. ( the Tercon series can be read on the Best of page)

    This is a problem that crossses ministries. Sean Holman has documented examples of bidding irregularities. Bob Mackin, It’s out there….. and it is indicitive of how this particular government likes to reward it’s friends and supporters.

    I would very much like to see that response if you get one – the only NDP MLA whose spoken out on this issue has been Guy Gentner, but he is retiring. We may not hear from the NDP on P3’s at all, or they might take a position on them across all sectors when they release their platform.

    Thanks Gary, for your support and kind words!

    Oh, and before I dash, Keith Reynolds sent me an email yesterday to add some clarification on the P3 issue with debt :

    ” I just wanted to pass on some information on the debt question. There is pretty clear evidence that the government originally thought they could keep P3 debt off book, just as had been done in the UK. However, thanks to pressure from the AG in the early and mid part of the last decade the P3 “debt” is now shown on the government books as debt. However, the carrying costs of that debt show up as the ongoing contractual obligations you mention.

    And it is these carrying costs which are much higher than public procurement because of higher borrowing costs and return on equity!”

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  10. Other people are also beginning to ask the parties about P3s. Metro Vancouver has written to all of them and this is one of their questions:
    • Will your party require local governments to use public-private partnership (P3) agreements to finance future large infrastructure projects, or will you allow them to secure funding arrangements that best meet the needs of local taxpayers?

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    1. This is fabulous news Keith! I know here in Surrey the city was considering a P3 for a new sports arena/stadium, haven’t heard much on that lately but I certainly hope it doesnt happen. It’s bad enough we have Fort Knox, oops I mean the new Green Timbers RCMP compound… which is more like a military base I hear, from those who have been in.

      If the people can understand why this needs to be an issue, they can then hold everyone accountable.In most cases, that debt will be here long after the politicians who created it are gone.

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  11. This kind of crony capitalism needs to be front and centre during the election campaign. With all this money not coming in and more going out in dishonest ways, there will be nothing to keep the province running and that means the environment will be exploited even more.

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    1. I agree, and I am certain there will be others along with myself keeping this front and centre. In a related point, the Globe and Mail had a fantastic article this summer on bribery and corruption… still very relevent today.

      http://www.theglobeandmail.com/news/politics/canada-ranked-worst-of-g7-nations-in-fighting-bribery-corruption/article592312/

      A must read.

      Canada has again been scolded on the international stage for its “lack of progress” in fighting bribery and corruption by a watchdog agency that ranks it among the worst of nearly 40 countries.

      Transparency International, a group that monitors global corruption, put Canada in the lowest category of countries with “little or no enforcement” when it comes to applying bribery standards set out by the Organization for Economic Co-operation and Development.

      ……

      The poor rating places Canada in the embarrassing company of countries like Greece, Hungary, the Slovak Republic and Slovenia – although New Zealand and Australia are also among the 21 countries in the bottom rung.

      …..

      Since the Corruption of Foreign Public Officials Act became law 13 years ago in Canada, a small fine against an Alberta company in 2005 has been the only conviction ever recorded. A trial set to start this August against an Ottawa man accused of bribery in India would be only the second time a charge has been laid under the act.

      By contrast, the United States has prosecuted more than 200 companies and individuals, many of them “a veritable who’s who of the corporate world,” according to Peter Dent, a partner at Deloitte and Touche, LLP who also sits on the board of Transparency International.

      “It is naive to think that you cross that 49th parallel and somehow we’re pure as the driven snow,” he said. “Canada does not have a great reputation when it comes to the enforcement of white-collar crime. If it’s not taken seriously by government, it won’t be taken seriously by the corporate sector.”

      ……

      Canada is also one of a handful of nine countries that explicitly permits so-called “facilitation payments” to foreign officials for acts of a “routine nature” that may be part of their jobs.

      When it comes to enforcement, Transparency International warned there was an “inadequacy of resources” at the RCMP’s Anti-Corruption Unit because officers were periodically re-assigned to other duties.

      Todd Shean, the RCMP’s chief superintendent in charge of financial crime, said the unit has 14 investigators in Ottawa and Calgary currently handling about 23 cases of alleged foreign bribery.

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  13. I heard a piece on CBC radio about home intruder alarms and the expert said (roughly), “You want to make your home harder than your neighbours,’ so the thief will go somewhere else.”

    Our neighbour to the south seems to have much harder targets….

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  14. Indeed you are bang on. While the US has begun to come down a bit harder on this, it still has a long way to go. For example, while the US is adamant against Chinese state connected takeovers etc, fearing – and rightly so -corporate and technological espionage – the largest foreign owner of US debt is China, which owns over a trillion dollars in US treasury bills, notes and bonds. Because of this, China still holds immense power in and over the US.

    Here in Canada, we seem to prefer to stick our collective heads in the sand about the extent of influence on politicians and government officials. If you go back and read those Playing with the Dragon posts, it happens so insidiously that people sometimes dont think of it as influence… but it is, whether its gold medal hockey game tickets, trips to foreign countries, gifts over a certain amount…. influence takes many forms, sometimes obvious, sometimes not so much.

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