CRA/CAMECO: The secret world of corporate tax avoidance

CRA/CAMECO: The secret world of corporate tax avoidance

Postby Oscar » Wed Oct 24, 2018 8:32 am

The secret world of corporate tax avoidance

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Allan Lanthier Special to The Globe and Mail Published October 17, 2018 Updated October 17, 2018

Allan Lanthier is a former chair of the Canadian Tax Foundation, and a retired partner of Ernst & Young.


Double-dips are only the tip of the iceberg. There are many other tax strategies that allow the transfer of deductible expenses to Canada and of Canadian profits offshore, often involving group companies established in tax havens. Cameco Corp. – a second recent decision – provides an example of one such strategy.

Cameco, headquartered in Saskatoon, is one of the world’s largest producers of uranium. In the late 1990s, Cameco developed a transfer pricing scheme to shift profits out of Canada – a strategy that ultimately included subsidiaries in Barbados, Ireland, Luxembourg and Switzerland.

Further to a number of intragroup and third-party agreements for the purchase and sale of uranium, Cameco’s Swiss subsidiary earned substantial profits – $8.4-billion for the years 2003 to 2017. There were only two employees in Switzerland: Most of the required business and management support was provided by Cameco. Cameco also provided financing to its Swiss subsidiary, and guaranteed its performance under the third-party agreements for the purchase of uranium.

The CRA issued assessments for the years 2003 to 2012, and is expected to issue similar assessments for the remaining years to 2017. The Canadian tax on the disputed amounts totals $2.5-billion for all years, before interest and penalties. The CRA’s position is that, under either the concept of sham or Canadian transfer pricing rules, all of the Swiss profits are taxable in Canada.

The first three years in dispute went to trial and, in a massive 293-page decision issued last month, the court found unequivocally in favour of Cameco: It ordered the CRA to reverse the assessments in their entirety. The court stated in part that the Swiss subsidiary was exposed to price risk associated with its ownership of uranium and that, under transfer pricing rules, it was entitled to compensation for that risk. The facts that the subsidiary did not have the financial resources to support the risk, and that it relied on its parent company Cameco for that purpose, did not change the court’s conclusion.

So, do large Canadian corporations avoid billions of dollars of taxes each year? You bet they do. And other taxpayers – you and I – have to ante up the shortfall. Canadian tax rules are in desperate need of repair. If the federal Department of Finance is not up to the task, the government should appoint a fair-minded and non-partisan group of tax experts to do the work.
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