Canadian companies can exploit a loophole in our tax code which permits them to deduct the profits they make offshore from their Canadian corporate taxes. The rationale is that because they are paying taxes in the foreign country where they own a factory or subsidiary they should not be taxed again in Canada.
But this encourages companies to move their operations out of Canada to low-tax offshore havens.
One company that has profited from this situation is Montreal-based Gildan Activewear Inc., one of the largest clothes manufacturers in the world, with annual sales of $2 billion and 29,000 employees around the world.
Run by the Chamandy family and founded in 1984, Gildan once made most of its clothes in Canada. It also received at least $2.7 million in total in taxpayers subsidies prior to closing its last Canadian factory. And at one point, when the company was struggling, it was bailed out by a Quebec union investment fund.
But with the signing of free trade agreements, Gildan felt the only way to compete in the textile trade was to move its factories to Latin America and the Caribbean basin to exploit cheaper labour. It closed its last Canadian plant in 2007.
By moving its factories overseas, Gildan managed to cut its Canadian tax rate down to nothing in the past four years, despite earning profits of $95 million in 2009, $196 million in 2010, $224 million in 2011 and $144 million last year.
Moreover, over the years, labour rights groups say they have found evidence that Gildan has been paying its workers in its plants overseas at below-poverty levels and working them too hard. The company says it has since made strides in improving working conditions, although complaints about the company’s labour practices continue.
“When you go into a Gildan factory you’re not going to see the typical sweatshop as we think of it,” explains Kevin Thomas, a former director of the Maquila Solidarity Network, a labour rights group that has investigated Gildan’s Latin American plants.
“It’s probably a well-lit factory, well-organized lines of production, people working in groups. So not necessarily on the surface a terrible place to be. But if you start to watch the production, how fast it goes – faster and faster, you’ll see that that’s a place where over the long term, again, you’re going to develop problems. Another major problem – and this happens in many of the countries where Gildan operates is a problem with freedom of association: The right to organize themselves to improve their conditions. Most unions in Honduras are suppressed, workers blacklisted for trying to organize. And this was a problem we had with Gildan in the past, which we think they’re more responsive to now. But it’s always an uphill battle.”
Gildan, on the other hand, said in a statement that it treats its workers well. “Over the years, Gildan has implemented an extensive social responsibility compliance program to ensure our employees are treated with respect and fairness,” says the company. “Gildan is committed to having all of its manufacturing facilities and contractors comply with its strict internal Code of Conduct which encompasses local and international laws, the code of conduct of the Fair Labor Association (FLA), the Worldwide Responsible Accredited Production’s (WRAP) set of principles and best practices in the industry.”
Don’t miss “Tax Dodge” this Saturday at 7pm on 16×9.