Eleven of Canada’s largest oil and gas companies have dozens of subsidiaries and related companies in known tax haven jurisdictions, according to a new report from the Ottawa-based non-profit Canadians for Tax Fairness.

Those companies include Suncor, Enbridge, CNRL, TransCanada, Imperial Oil, Cenovus and Husky.

The report, titled “Bay Street and Tax Havens: Curbing Corporate Canada’s Addiction,” examined the largest 60 companies listed on the Toronto Stock Exchange and found that just four didn’t have a publicly listed subsidiary in a known low-tax or no-tax haven.

“If you can afford the lawyers and accountants and it’s legal to do, you’ll do it,” report author Diana Gibson, told DeSmog Canada.

“Maximizing shareholder returns is the job of the CEOs and if it’s legal to avoid taxes then they will.”

Knowing how pervasive the issue is among oil and gas companies in Canada is important in order to pressure lawmakers to act, Gibson added.

“We’re not talking about slapping the hands of a couple of folks — we’re talking about a problem that needs to be fixed in the legislation.”

The new report shows companies like Enbridge and TransCanada are in line with global oil and gas industry practices. In 2015, a federal parliamentary inquiry in Australia found ExxonMobil and Chevron hold a combined $87 billion USD in tax havens.

Canadian Oil and Gas Companies Own a Combined 46 Entities in Tax Haven Countries

The report arrives on the heels of the explosive Paradise Papers, which contained 13.4 million confidential documents implicating many renowned figures — including the Queen, Bono and three former Canadian prime ministers — in the legal but ethically dubious practice of storing money in offshore tax havens.

The revelations also come as many oil and gas companies claim government policies such as methane regulations, carbon pricing or higher royalty rates create undue financial burdens and could cripple their business case.

“We constantly hear these stories about these large corporations — particularly oil and gas corporations in Alberta — operating on the margins: that they can barely make ends meet; that any shift will ultimately affect their bottom line and cost jobs and all of those things,” Ricardo Acuña, executive director of the Parkland Institute, told DeSmog Canada.

Those common talking points paint of picture of an industry without profits to hide, Acuña said.

The new report contradicts that, he said.

In total, the report calculated that oil and gas companies own a combined 21 listed subsidiaries and 25 companies inferred to be related.

These were identified by using information from corporate filings and company registries.

There could be more: Gibson from Canadians for Tax Fairness said the figures in the report are likely incomplete due to a lack of transparency required from companies.

Enbridge, TransCanada Among 11 Canadian Oil and Gas Firms Using Tax Havens https://t.co/iDlneUBXEv #cdnpoli @CdnTaxFairness @ParklandInst #oilsands

— DeSmog Canada (@DeSmogCanada) November 16, 2017

Canadian Direct Investment in Tax Havens Grew A Hundredfold in 20 Years

The report’s definition of a “tax haven” provided by the Organisation for Economic Co-operation and Development (OECD), has four simple components: an extremely low or non-existent tax rate, a separation of tax rates from the country’s regular economy, a lack of regulatory supervision and an absence of information exchange.

In other words, a region where money is kept solely to house excess profits that people or corporations wish to remain untaxed.

The best known tax havens are based in Caribbean countries, including Barbados, Bermuda, the Cayman Islands and the Bahamas. The U.S. state of Delaware actually served as the most popular location for Canadian companies to house their money, sporting 472 subsidiaries from only 60 companies.

It’s virtually impossible to know how much companies actually store in these jurisdictions.

But as noted in the report, Canadian foreign direct investment (FDI) into the top 10 tax haven jurisdictions has increased from $2.1 billion in 1994 to more than $284 billion in 2016.

While companies might claim that such a spike is associated with productive investments, there’s a complete disconnect from local employment: in Bermuda, there’s only one person hired for every billion dollars in assets, increasing to a mere 16 people per billion in Barbados.

Dozens of notorious tax treaties and tax information exchange agreements (TIEAs) allow for the easy transfers of money between jurisdictions.

“We don’t know how much of this money is being hidden, how much of it’s being legitimately invested,” Acuña said.

“We’re trying to piece this together from information we don’t have. The government needs to crack down on what companies have to report out when they’re moving money around and in terms of their foreign direct investment.”

Canada Losing Estimated $10 Billion to $15 Billion Per Year

The report found Canada was missing out on an estimated $10 billion to $15 billion in taxes per year from the 60 companies listed.

Four of the oil and gas companies identified in the report were also listed in Canadian Business magazine’s 2014 investigation into corporations that were paying “unbelievably low tax rates.”

That investigation reported that over the course of a decade, CNRL, Enbridge, TransCanada and Suncor only paid between 13.6 per cent and 15.6 per cent of their income in taxes.

While companies like CNRL and Suncor receive significant deductions due to capital costs and royalty payments, such percentages are still extremely low when compared to the average Canadian’s tax rate of 42 per cent.

As noted by Acuña, it’s not enough to just increase corporate income rate rates or revamp the nonrenewable resource royalty framework if companies can continue to move their profits to low-tax jurisdictions. Such a move would have to be paired with a serious clampdown on rules about tax havens.

“The issue is that the law needs to change,” Gibson said. “You can’t crack down on legal tax avoidance.”

Billions Likely Needed in Coming Decades to Cover Environmental Costs

Gibson pointed to NDP MP Murray Rankin’s recently proposed private member’s bill as a good first step.

Bill C-362 would amend the Income Tax Act to deny tax breaks to financial transactions that “lack real economic substance.” That would ensure that earnings are taxed properly in the jurisdiction in which they’re made.

The report made several other recommendations. Those include requiring the Canada Revenue Agency to compile actual information and data on tax havens, renegotiating tax treaties to set a minimum threshold for tax rates, and taking a much stronger international leadership role.

Such conversations may take on additional urgency in coming years as costs of environmental and climate liabilities continue to mount for various levels of government, although Acuña expressed some skepticism about the federal government acting given Finance Minister Bill Morneau’s recent run-ins with similar issues.

“It sure looks like oil and gas companies are raking in the profits and stashing them away in tax havens, while Canadians are stuck with the mess they leave behind, including toxic tailings ponds, oil spills, and climate damages,” Patrick DeRochie, climate and energy program manager at Environmental Defence, told DeSmog Canada.

“Once you take away all the oil and gas subsidies and the money stowed away in tax havens, and start accounting for the massive costs to the environment and public health, you get an industry that is no longer economical.”

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Canadian oil and gas companies could be liable for billions of dollars of damages per year for their contribution to climate change caused by toxic greenhouse gas emissions, according to a study published Thursday.

The study looked at five oil and gas companies currently trading on the Toronto Stock Exchange — Encana, Suncor, Canadian Natural Resources, Talisman, and Husky — and found they could presently be incurring a global liability as high as $2.4 billion annually.

“Climate change is increasingly discussed not as some far-off threat but in terms of current realities,” said the 62-page study — Payback Time? What the internationalization of climate litigation could mean for Canadian oil and gas companies.

Published by the Canadian Centre for Policy Alternatives and West Coast Environmental Law (WCEL), the study found data showing the global financial cost of private and public property and other damage associated with climate change in 2010 has been estimated at $591 billion, rising to $4.2 trillion in 2030.

“That number is expected to increase dramatically in the coming years,” said the study written by Andrew Gage, WCEL staff counsel and University of British Columbia professor Michael Byers.

“In Canada, the National Roundtable on the Environment and the Economy has estimated that climate change will cost $5 billion annually by 2020. Given these significant costs, attention will inevitably shift to the issue of compensation and liability. In short, who will pay for the costs and damages caused by climate change, as well as the necessary adaptive measures?”

Fossil fuel companies and other large-scale greenhouse gas producers have contributed, globally, to trillions of dollars of damages related to climate change, Gage said in an accompanying media release.

“As with tobacco companies in the 1980s, these producers are confident the law will not hold them responsible for these damages,” Gage added.

“But rising levels of climate damage, increasing scientific evidence about the links between emissions and the damage they cause, and an emerging public debate about who is financially responsible for this damage, could change the situation very quickly.”

The most serious risk to Canadian companies is not litigation in Canada, the media release said. “Because the impacts and causes of climate change are global, climate damages litigation could take place in, and apply the laws of, any of the countries where damage occurs.”

Byers, Canada Research Chair in Global Politics and International Law, said substantial shifts will be required of large-scale greenhouse gas producers and their investors if they hope to manage the risk of climate damages litigation.

Those shifts include “moving away from fossil fuels, and supporting the adoption of international agreements that could link the reduction of liability risk to the provision of financial assistance or future emission reductions.”

The study concluded that the potential for climate damages litigation is global in scope.

“Cases could be brought in a large number of countries, under a wide range of legal theories, then enforced in Canada or other countries in which greenhouse gas producing companies have assets,” the study said.

“As a result, these companies and their shareholders are exposed to significant legal and financial risks — and these risks will only grow.”

In a telephone interview, Gage told DeSmog Canada that he is not aware of any successful climate damages litigation anywhere in the world, even in the highly litigious U.S.

“This is very new and in very early days but it is evolving fairly rapidly,” he said. “I would think there would be lawsuits of this type outside the U.S. within a couple of years but we’ll have to see.”

In a related commentary in Thursday’s Globe and Mail, Gage and Byers said climate change is no longer a distant threat.

“Canadian oil and gas companies could soon find themselves on the hook for at least part of the damage,” they wrote. “For as climate change costs increase, a global debate has begun about who should pay.”

They also noted Nobel Peace Prize laureate Desmond Tutu recently called on global leaders to hold those responsible for climate damages accountable.

“Just 90 corporations – the so-called carbon majors – are responsible for 63 per cent of CO2 emissions since the industrial revolution,” Tutu was quoted as saying. “It is time to change the profit incentive by demanding legal liability for unsustainable environmental practices.”

Image Credit: Zack Embree

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This is a guest post by Andrew Gage, Staff Counsel and head of the Climate Change program at West Coast Environmental Law, and Michael Byers, the Canada Research Chair in Global Politics and International Law at the University of British Columbia. This article originally appeared in the Globe and Mail.

Climate change is no longer a distant threat. Peer-reviewed science has already linked climate change to drought in Texas and Australia, extreme heat in Europe, Russia, Japan, and Korea, and storm-surge flooding during Hurricane Sandy and Typhoon Haiyan.

Climate change is already causing about $600-billion in damages annually. Here in Canada, the National Roundtable on the Environment and the Economy estimated that climate change will cost Canadians $5-billion annually by 2020.

Canadian oil and gas companies could soon find themselves on the hook for at least part of the damage. For as climate change costs increase, a global debate has begun about who should pay.

Nobel Peace Prize laureate Desmond Tutu recently called on global leaders to hold those responsible for climate damages accountable. “Just 90 corporations – the so-called carbon majors – are responsible for 63 per cent of CO2 emissions since the industrial revolution,” Tutu said. “It is time to change the profit incentive by demanding legal liability for unsustainable environmental practices.”

So far, the fossil fuel industry has successfully opposed litigation for climate damages, brought in the United States by victims of hurricanes and sea level rise. But new areas of litigation often fail at first; in the 1980s, tobacco companies were still boasting that they “have never lost a case to a consumer, have never settled, and do not expect that picture to change.” As the tobacco industry learned, changes to the interpretation and application of laws sometimes occur quite rapidly.

Nor is litigation in the U.S. or Canada the only thing the fossil fuel industry should worry about. It is becoming increasingly likely that companies could be sued by victims of climate change overseas, in countries with quite different legal systems. There, they might face lawsuits based on constitutional rights to a healthy environment, strict liability for environmental harm, or any number of other legal principles that don’t currently exist in Canadian law.

Once a foreign court has ordered a Canadian company to pay for climate damages, that order is a debt – which Canadian courts can be asked to enforce. Chevron is currently fighting court actions in Canada, the United States and Brazil that seek to enforce a $9.5-billion award handed down by the supreme court of Ecuador – for pollution caused by oil spills.

Moreover, new laws could be introduced to facilitate climate litigation. When Canadian provinces encountered impediments to their ability to sue tobacco companies for public health costs, they eliminated those impediments by passing new laws. It’s not hard to imagine countries impacted by climate change enacting new laws to clarify the liability of greenhouse gas producers.

Five companies traded on the Toronto Stock Exchange are among the “carbon majors” – Encana, Suncor, Canadian Natural Resources, Talisman, and Husky currently are collectively responsible for about $2.4-billion a year of global climate damages.

Canadians are broadly supportive of the “polluter pays” principle – the idea that those who cause pollution should pay for the harm. But because climate change has seemed far off, there has been relatively little discussion about who should pay. It has been assumed – by industry, politicians, even some environmental activists – that oil and gas companies can continue producing with impunity, at least until a global climate agreement is reached.

But rising climate costs cannot be born only by taxpayers and by those who suffer the impacts of climate change. We believe that a new global awareness of the moral and legal responsibilities of the carbon majors will lead to a wave of climate litigation. Foreign lawsuits – with damage awards that are potentially enforceable in Canada – will be difficult and expensive to defend.

Image Credit: Zack Embree

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