Study on tax avoidance | Luxembourg popular with Quebec inc.

Quebec inc. has not remained indifferent to the charms of Luxembourg, one of the hubs for tax avoidance – a legal practice used by many companies to reduce their tax bill. Over 20 years, billions in net profits have passed through this European country, reveals a study by the Institute for Socioeconomic Research and Information (IRIS) unveiled this Thursday.

25 billion

This is the total net profits declared by 33 Quebec companies through their Luxembourg subsidiaries since 2003, according to data compiled by the left-leaning think tank. Despite this observation, it is not possible to quantify the extent of the tax losses suffered here. “The profits transferred to Luxembourg concern income generated in several countries with their own tax regime,” recognizes researcher Colin Pratte, who co-authored the study with Sophie-Elias Pinsonneault. It cannot be determined with certainty where the revenue was generated in the first place. » Nationally, the total jumps to 120 billion over the period by adding the net profits declared by Canadian companies in Luxembourg. IRIS compiled this data by combing through the public documents of companies listed on the stock exchange as well as those filed with the Luxembourg Trade and Companies Register.

Big names

We find well-known names among the companies which continued, until very recently, to declare profits through their Luxembourg subsidiaries. The convenience store and gas station giant Alimentation Couche-Tard, the multinational technology consulting service CGI and the dairy processor Saputo are among the companies identified by IRIS as part of its research. At the time of writing, Couche-Tard and Saputo had not responded to questions from The Press. At CGI, a spokesperson, Andrée-Anne Pelletier, simply responded that the company “continues to carry out its activities in Luxembourg”.

Popular strategy

How do the companies mentioned reduce their tax bill? Most opt ​​for the cross-border intra-group debt method. It allows a company to lend capital to itself through its subsidiaries to artificially inflate its interest costs in subsidiaries where the tax rate is higher. “This debt game allows a portion of income to be tax exempt,” underlines the study. At the Research Chair in Taxation and Public Finance, Lyne Latulippe and Michaël Robert-Angers are familiar with this strategy. They believe that IRIS quantifies the phenomenon, which is widespread in all four corners of the world. “We are putting our finger on a common strategy, particularly among Canadian companies that are expanding abroad,” explains M.^me Latulippe.

– 61%

Despite its international popularity, Luxembourg seems to have lost luster among many companies established in Quebec. According to the count carried out by IRIS, the subsidiaries of around twenty companies established in Quebec seemed inactive since 2020. Companies, such as the engineering firm WSP and the specialist in flight simulators and pilot training CAE, indicated to The Press that their Luxembourg subsidiaries had no longer been active since 2022. It was not possible to determine precisely what explains this change. According to the European Tax Observatory, Luxembourg ranked fifth in the world in 2020 in terms of profit transfer. “If the strategy was still working, the companies would probably have continued,” says M.^me Latulippe. This shows a movement. »

For what ?

Difficult to say why firms are turning their backs on Luxembourg. The IRIS researcher partly evokes certain modifications to the Canada-Luxembourg bilateral convention, the spirit of which consists, among other things, of limiting the “abuse of conventions” for tax purposes. We will have to wait a few more years to get an idea of ​​the effect of these changes, says Mr. Pratte. At the Chair of Taxation at the University of Sherbrooke, we point to the changes proposed by Ottawa aimed at tightening the screws in terms of interest deductibility to reduce its tax bill.

A damper

If the number of companies transiting through Luxembourg is decreasing, the profits declared by Quebec companies seem to follow an opposite trend. The 800 million calculated by IRIS in 2011 increased to around 1.3 billion in 2021. “It is true that we are observing a decrease in the number of active subsidiaries in Quebec, but the sums of money [déclarées] increased. On an international scale, what the data shows is that the use of Luxembourg in the tax planning of multinationals is increasing. » There has indeed been a decline observed in recent years, but according to IRIS, it is distorted by Valeant (now called Bausch Health). The peak observed from 2016 to 2018 is essentially attributable to the pharmaceutical industry established in Laval, estimates the think tank. During this period, the company carried out transfers of “intellectual properties” between Luxembourg and Ireland, another country where tax rules are considered advantageous for companies.