Why is Canada the global mining powerhouse?
It’s not the weather or nice people. Internationally focused mining companies set up shop here because the financial and technological infrastructure is present and we treat them like royalty, or in the words of author Alain Deneault, Canada is the “most attractive tax and regulatory haven for the world extractive industry.”
Disclosure requirements on the Toronto and Vancouver stock exchanges are relatively lax. Firms must only report operational information of interest to a “reasonable investor”. A publicly listed firm is not required to disclose operational developments causing social harm if they are unlikely to impact the company’s bottom line. The Mining Association of Canada boasted that TSX rules were “designed around the needs of the mining industry.”
While stock exchange regulators are largely indifferent to the broader consequences of corporate behavior, so are Canadian politicians and the legal system. Canada does no withhold diplomatic and financial support from companies responsible for major abuses abroad. Additionally, it’s extremely difficult to pursue a Canadian company in domestic court for committing human rights violations abroad. Canada does not have a law like the US Alien Tort Act, which allows criminal or civil suits against Canadian companies responsible for environmental and/or human rights violations abroad.
In a boon to an industry highly dependent on public officials, Ottawa has long been permissive towards corruption by Canadian nationals abroad, including the natural resource sector.
Canadian tax policy is also mining friendly. According to Alain Deneault, Canada is “the tax haven of choice for the extractive sector.” Ottawa has signed nearly 100 bilateral tax treaties and 30 Tax Information Exchange Agreements with other countries. These agreements generally allow internationally focused companies to return profits to Canada without paying tax here.
The tax code specifically privileges the ecologically damaging extractive sector in a variety of ways. The “Canadian exploration expense” and “Canadian development expense” allow miners to write off expenses and the tax code provides avenues for resource corporations to sidestep Canadian tax if their extractive operations are outside the country. Flow through shares encourage stock purchases in high risk resource exploration companies. With a flow-through share individuals can personally deduct part of a company’s expenses, which it cannot claim because it has already deducted all its income. Investors can receive the benefits of some flow-through shares even when the company is entirely foreign focused. Making light of the program, Deneault writes that investing in a Canadian “mining company is tax-free just as a charity donation.”