Pension board that set up offshore shell companies is separate from government, Tony Clement affirms

Cabinet Minister Tony Clement has moved to distance the federal government from a Crown corporation's decision to set up a complex arrangement of offshore companies as part of a tax "avoidance scheme" on pension investments in Europe.

CBC News reported today that the federal Public Sector Pension Investment Board, also known as PSP Investments, used a web of 24 corporations and other entities in Luxembourg and Germany to hold about $390 million in real estate in Berlin between 2008 and last year.

• Crown corporation used offshore 'scheme' to avoid taxes
• READ | Crown corporation's secret tax plan

The investment structure allowed PSP Investments — which manages $94 billion in pension funds for federal civil servants, RCMP officers and Canadian Forces members — to avoid close to $20 million in German taxes.

While entirely legal, PSP's own advisers label it an "avoidance scheme."

A senior German tax official called it "a very aggressive way to avoid taxes" and a German MP said it was "hypocritical."

Clement, who as Treasury Board president appoints the pension board's 11 members, emphasized that it is separate from the government. 

"PSP Investments operates at arm's length from the federal government. It is not part of the federal public administration, and its business and affairs are managed by a board of directors," he said in a statement Tuesday in response to an interview request.

The revelation that a federal Crown corporation is using an offshore haven like Luxembourg to anchor the very type of complex international tax stratagem Western countries are now attacking could prove embarrassing to the government.

'Key area of concern'

Just on Monday, during House of Commons debate over a budget implementation bill, Revenue Minister Kerry-Lynne Findlay repeated the Conservatives' message that "one of our government's key areas of concern is the issue of international tax evasion and aggressive tax avoidance."

It's a theme that has echoed repeatedly in recent years at meetings of the G8 and G20 countries and at the Paris-based Organization for Economic Co-operation and Development (OECD), in all of which Canada is a member.

Companies like Google and Apple have been using legal loopholes to route profits into Caribbean havens, via subsidiaries in places like Ireland and the Netherlands. Facing tax leakage, countries have vowed a crackdown.

The two German officials interviewed by CBC News both found it distressing that a government would pledge to fight aggressive tax avoidance, but then see one of its own corporations engaging in it.

"It's not up to me to talk about the Canadian government," said Juergen Kentenich, director of the regional tax office in Trier, the closest German city to Luxembourg, who characterized the pension board investment arrangements as "very aggressive" tax avoidance.

"But I do wonder about governments that are involved in the fight against tax avoidance and work with the OECD and G20 to keep it in check, and then do such things themselves. That raises questions."

German opposition MP Gerhard Schick called the Canadian pension board's dealings "hypocritical."

"Our governments should work for better rules, but they should also, in the companies they control, make sure that they are not part of the problem and avoid taxes as aggressively as private investors do," he said.

'In a transparent manner'

Clement, in his statement about the pension board, said: "We expect investments to be done in compliance with laws, rules and regulations, in a transparent manner, while keeping in mind the best interests of its clients."

The point about transparency is yet another concern for critics of companies that exploit tax loopholes.

The PSP Investments holdings came to light in a large leak of records exposing hundreds of global companies' dealings in Luxembourg, where money gets shifted to capitalize on advantageous tax and secrecy rules.

The records were obtained by the Washington-based International Consortium of Investigative Journalists and shared with CBC News.

Separately, CBC applied under access to information legislation to get the same documents directly from the Public Sector Pension Investment Board.

But the files that were released came heavily redacted. In some cases, entire pages were blacked out. It would have been impossible to trace the pension money flows from Canada to the Berlin real-estate holdings.

(On mobile? See a document-reveal animation here)

PSP Investments cited several sections of the Access to Information Act in censoring the documents. Those clauses exempt from disclosure information that could "prejudice the competitive position" or "be materially injurious to the financial interests" of a government institution.

Another clause specifically gives the Public Sector Pension Investment Board the right to withhold financial and commercial information that it "has consistently" treated as confidential.

In an email last week, vice-president Mark Boutet said the pension board's tax dealings have been "transparent."

"Our tax planning fully complies with all laws, rules and regulations, is done in a responsible and transparent manner and is in the best interests of the pension plans for which we manage assets."

In a follow-up email Tuesday, he said: "We respectfully disagree with your characterization of our actions as 'aggressive tax avoidance.' "

Secret tax plan

The Public Sector Pension Investment Board's tax plan for its Berlin holdings was devised by the Luxembourg branch of global accounting firm PricewaterhouseCoopers. An uncensored, leaked copy of the document was obtained by the International Consortium of Investigative Journalists and shared with CBC News.