PSP's Revera 'Aggressively' Dodging Foreign Taxes?

Globe News Wire reports Canadian long term care company Revera Inc. is tax dodging to boost profits according to a new report by CICTAR:

Canada’s second largest long term care home operator, Revera, appears to use aggressive tax avoidance schemes in the UK, according to a new report, Tax Dodging by a Canadian Crown Corporation: Revera Living Making a Killing, from the Centre for International Corporate Tax Accountability and Research (CICTAR). High numbers of COVID-related deaths in for-profit homes have exposed longstanding systemic problems across the long-term care sector, including chronic understaffing and low pay. The report shows how Revera’s UK care homes generate large revenues, but appear to shift profits offshore, raising major concerns in the UK and Canada that Revera-owned homes prioritize profit over people.

Revera is entirely owned by the C$170 billion Public Sector Pension Investment Board (PSP). Tax dodging in the UK would violate PSP-endorsed responsible investment principles and raises critical questions about Revera’s business model.

Jason Ward, the author of the report, said, “We found that Revera CEO and executives are directors of shell companies in several tax havens, which are part of a complex corporate web. Revera-controlled operating companies report losses in the UK to eliminate income tax payments and generate tax credits.”

In response to the report, Christina McAnea, general secretary of UNISON, the UK’s largest union and the union for care sector workers, said, "All companies and organisations providing public services must pay their fair share of taxes. All governments need to ensure all money due to the public purse is collected, without exception."

With high numbers of COVID-19 deaths occurring in Canada’s long term care homes, public pressure from health care advocates and members of the Public Service Alliance of Canada (PSAC) – who own Revera through their pension fund - is mounting to “Make Revera Public”, and to eliminate profit from Canada’s long term care sector entirely.

The Centre for International Corporate Tax Accountability and Research (CICTAR) put out this press release: 

Revera, a private corporation, is the second largest care home operator in Canada. An in-depth analysis of Revera’s UK care homes indicates a pattern of aggressive corporate tax avoidance and may provide insights into Revera’s corporate conduct and culture in Canada, where limited information is publicly available.

Revera is directly owned by the Public Sector Pension Investment Board (PSP), a Canadian Crown corporation and one of Canada’s largest public sector pension funds. Excessive and preventable COVID-19 deaths at Revera’s Canadian facilities, apparent aggressive tax avoidance strategies in the UK, and lack of transparency, all raise serious doubts about PSP’s claims to be a responsible investor.

Read the full report or download it here.

Alright, someone in Ottawa gave me a heads-up and sent me the report, and I thank them for doing so.

I read the full report here and will provide you with the Executive Summary:

The percentage of COVID-19 deaths in long-term care homes in Canada – higher than in any other country – has exposed the long-standing concern that profit is prioritised over care. Revera, a private corporation, is the second largest care home operator in Canada. An in-depth analysis of Revera’s UK care homes indicates a pattern of aggressive corporate tax avoidance and may provide insights into Revera’s corporate conduct and culture in Canada, where limited information is publicly available.

Revera is directly owned by the Public Sector Pension Investment Board (PSP), a Canadian Crown corporation and one of Canada’s largest public sector pension funds. Excessive and preventable COVID-19 deaths at Revera’s Canadian facilities, apparent aggressive tax avoidance strategies in the UK, and lack of transparency, all raise serious doubts about PSP’s claims to be a responsible investor.

Revera’s CEO, and other top executives, are directors of dozens of tax haven subsidiaries – in Jersey, Guernsey and Luxembourg – which own 60 UK care homes as part of complex corporate structures. Welltower, Revera’s joint venture partner in the UK and one of the largest Real Estate Investment Trusts (REITs) in the US, discloses substantial UK profits. However, Revera-controlled UK care home operating companies report little or no profit in the UK in what appears to be a highly aggressive tax avoidance scheme. In 2019, its UK care homes charged residents more than £225 million in fees but were able to claim multiple UK tax credits. 

Revera and Welltower operate UK care homes under 3 brands: Sunrise, Gracewell, and Signature. Sunrise – also one of the largest US senior housing operators – is 65% owned by Revera and 34% owned by Welltower. Although separately owned, Sunrise also operates Gracewell properties. Signature, a separate company, is owned by Revera via Guernsey holding companies, but most of its care homes are jointly owned with Welltower.

According to UK filings, the three Revera-controlled care home companies reported combined losses of US$12.6 million in the most recent year. In contrast, Welltower’s 2019 global reporting indicates an estimated US$333.7 million in revenue and US$84.8 million in net operating income from its share of UK investments with Revera. The discrepancy between the UK filings of Revera-controlled companies and Welltower’s global reporting may indicate profit shifting. It appears that Revera uses tax havens and complex related party transactions to avoid UK income tax on profitable businesses.

Are deferred wages of federal government workers invested in corporations using aggressive tax avoidance schemes? Or is Revera’s relationship with Welltower, its largest global investment partner, on highly unfavourable terms? Neither scenario is acceptable conduct for a Canadian Crown corporation charged with the responsible stewardship of retirement assets of federal workers whose current income relies on income tax payments by other corporations and individuals.The case study of Revera’s UK care homes demonstrates the need to address the use of tax havens and contrived corporate structures specifically designed to reduce or eliminate tax liabilities where profits are generated. The lack of publicly available information on 

Revera’s Canadian operations highlights a lack of transparency on both quality of care and finances in the long-term care sector. Canada’s requirements for financial reporting are far below existing standards in the UK, Luxembourg and many other jurisdictions. Reforms are urgently needed in Canada to increase transparency and ensure that care is not sacrificed for profit. PSP must also ensure that Canadian and international businesses which it controls – Revera included – act responsibly and within the letter and spirit of the law. Aggressive tax avoidance schemes should not be acceptable conduct for any responsible business, particularly not a Canadian Crown corporation.

What can I say? PSP's Revera disaster is the gift that keeps on giving, at least from a public relations perspective.

I typically ignore these reports but this one isn't some shoddy report, it's methodical, goes into details especially on the tax and corporate structure front, but it's also very biased and confounds separate issues.

There are a few issues here:

1. Did Revera engage in aggressive tax avoidance? 
2. Did PSP and Revera knowingly violate the spirit of the law? 
   
3. Did Revera neglect its duty to put the health and well-being of its patients first?
4. Is PSP Investments neglecting its duty to be a responsible investor?
   

On the first issue, there definitely is tax avoidance going on and the report highlights a very complex corporate structure between Revera and Welltower:

Whenever you see such a corporate structure, you know its done purposely to minimize the tax burden.

Is it "aggressive" tax avoidance? I'm not an accountant but it sure looks aggressive to me.

But is it illegal in any way? Absolutely not, it's done within the parameters of the law and if countries allow such tax schemes to exist, then it's legal for any corporate entity to do it to minimize its tax bill.

Remember, corporations are there to make profits. Revera doesn't have shareholders but it is a wholly owned by PSP Investments and it has to meet its financial targets.

We can debate whether this tax scheme "violates the spirit of the law" but that really doesn't tell me much, if you look into how a lot of publicly traded and private corporations use tax loopholes and structure their corporation to minimize taxes, I reckon every major corporation out there is "violating the spirit of the law". 

Recall, back in 2014, PSP Investments was embroiled in another embarrassing story where it was accused of skirting foreign taxes in Germany. 

I'll say the exact same thing I said back then, if these countries allow for such activities, then it is not illegal. It's up to that country's tax authorities to close these loopholes.

Of course, tax policy has to also promote foreign investment. If they start closing all tax loopholes, good luck attracting capital (it's a competitive market).

Alright, what about PSP and Revera neglecting their duties to act responsibly and jeopardizing the health and well-being of the patients they take care of?

Well, earlier today, I reached out to PSP and Revera and to my surprise, got a response from both.

First, on the tax avoidance claim, Susan Schutta, VP Corporate Affairs at Revera, said this: "We can confirm that Revera structures our affairs in a manner that abides by all laws in the jurisdictions where we operate." 

Second, and more importantly, Verena Garofalo of PSP shared this with me:

Thank you for reaching out.

As a wholly owned subsidiary of PSP Investments, a Crown corporation, Revera is considered a crown immune corporation in the United Kingdom and therefore is typically not subject to income or capital gain tax in the UK. You can learn more about PSP’s tax strategy here.

Revera’s legal structure regarding its UK care homes is consistent with PSP’s responsible investing policy and was either inherited at acquisition or put in place for other corporate purposes.

Revera operates at arm’s length from PSP Investments with an independent Board of Directors and management. Our confidence in Revera’s dedicated management and staff is unwavering as they continue to comply with public health authorities’ pandemic response guidelines. Revera is committed to working with all levels of the Canadian government to find the right solutions for the long-term care industry and discuss lessons learned from the ongoing pandemic. Health and safety has always been, and continues to be, a priority for PSP Investments and Revera.

In June 2020, Revera engaged a panel of independent experts from diverse fields in health care to explore what happened in homes during the first wave, and to inform our operations going forward. We invite you to learn more about Revera’s Expert Advisory Report here and their Pandemic Response Plan here.

Thank you, PSP Investments

I like that "Thank you, PSP Investments," made me chuckle.

But in all seriousness, they address a lot of the issues this report raises head on and even provide links to make their case.

I'm on record stating this pandemic has exposed serious weaknesses at Canada's (and other countries) long term care facilities, both public and private. (read my Revera comment here)

Is Revera perfect? Hell no! But find me one perfect long term care facility in this country, it simply doesn't exist.

Do I have any doubts that Revera puts its patients' interests first? No, I don't, it has received a lot of bad press, all part of an orchestrated attempt to shut down private LTC facilities in this country (so unions can gain more power).

Again, don't get me wrong, Revera isn't perfect, it can improve a lot and learn from this pandemic, and if you look at its Expert Advisory Report here and their Pandemic Response Plan here, it shows you they are taking serious measures to address any concerns and are trying to improve.

I'm sick and tired of the media (mostly CBC and CTV) singling out Revera as the poster child of an evil long term care operator.

Always ask yourself, who is writing these articles, who is reporting and what's their beef and angle?

Let me end by stating this, however, it might be time for Revera to mix up its board of directors and more specifically ask its Chair, Michael Mueller, to step down.

Mr. Mueller was the former Chairman of PSP Investments and I've heard mixed reviews on him. Maybe it's time he steps down from Revera's board, especially after a tumultuous year, and let someone else take over as the Chair.

Alright, let me end it there before I say something I'll regret.

Below, CBC News reports one of Canada’s biggest long-term care operators says government and public-health officials left them poorly prepared during the first wave of the COVID-19 pandemic. More than 280 people at Revera's retirement residences and long-term care homes died during the pandemic's first wave, prompting a company review.

Like I've said before, there's plenty of blame to go around, we as a country need to learn the hard lessons of this pandemic to make sure we never repeat the same mistakes again.