Cirque founder’s space trip was taxing in the end
LALIBERTÉ FACES BIG BILL AFTER $42 MILLION ADVENTURE
Nearly a decade after Cirque du Soleil founder and then-controlling shareholder Guy Laliberté blasted off to the International Space Station and broadcast his exploits via live video link to fundraising concerts and events featuring Bono, Shakira, Al Gore, and David Suzuki, the repercussions continue to ripple through Canada’s tax courts.
At issue is whether the $41.8 million price tag for the space trip in the fall of 2009 should have been claimed by Laliberté as a taxable benefit as the company paid the tab. The Canada Revenue Agency said it should and, this week, the Tax Court of Canada weighed in with a decision on Laliberté’s appeal that maintains a significant portion of the CRA’s assessment.
“I find that the motivating, essential and overwhelmingly primary purpose of the travel was personal,” wrote Justice Patrick J. Boyle in Wednesday’s Tax Court of Canada decision.
“Simply put, there is a difference between a business trip which involves or includes personal enjoyment aspects, and a personal trip with business aspects, even significant ones, tacked on,” the judge concluded. “I have found that this space trip falls into the latter category, and the tax consequences to the business income are considered and determined accordingly.”
Following testimony over six days last September and in April, there was no evidence Cirque du Soleil would have considered sending anyone else “on this trip, or any comparable stunt… to raise its brand awareness or to generate helpful media for its entry in the Russian market in the absence of M. Laliberté having first decided he was going on his space trip,” Boyle wrote.
What’s more, the judge noted, the Space Flight Agreement was between Space Adventures and Laliberté and his family holding company, which also took out his insurance policies for the trip. Cirque du Soleil reimbursed costs of the trip.
While there was some evidence that the company used Laliberté’s space trip to promote itself and some of its activities, “Cirque du Soleil did not do any analysis or investigation of the value to it of the anticipated media coverage,” Boyle wrote.
“This is consistent with my inference from the CEO (Daniel Lamarre)’s testimony … and my holding from the totality of the evidence, that Cirque du Soleil was told, not asked, by the Appellant that he was going on the space trip.”
Nicolas Simard, a partner at law firm Fasken Martineau DuMoulin LLP in Montreal who specializes in tax litigation, said the next step will be for the CRA to reassess Laliberté based on the tax court’s decision.
“Ninety per cent of the assessment is maintained — so this is a clear loss for the taxpayer,” Simard said. He estimated the $37.6-million benefit could come with a possible $18.1-million tax bill, plus interest, based on combined federal and provincial taxation rates.
According to Boyle’s decision, Laliberté had argued that his participation in the space trip was part of a “stunt marketing event” for Cirque du Soleil and that the entire cost should therefore be deductible by the company as a marketing of promotional expense.
It was also argued that the acrobatic entertainment company received public attention from the trip though media coverage and that, had the publicity been paid for, it would have exceeded the cost of his trip.
The video broadcast at venues in 14 cities around the world — on the 10th day of the trip and “with a good number of other world-class entertainers,” the judge noted in his decision — was part of a series of benefit concerts for One Drop Foundation, a charity that supports the availability of clean pure water “that is strongly and publicly associated with Cirque du Soleil.” Laliberté had pledged $100 million to One Drop over 25 years, the judge noted.
In the video, Laliberté gave three reasons for making his space trip: The first was to carry out the mission in support of One Drop, “and the other two are purely personal,” the judge wrote. He added that Laliberté referred to himself as a “space tourist” fulfilling a personal dream in one of the media clips.
In a footnote to his decision, the judge took issue with the contention that Cirque du Soleil had benefited from free media coverage as a result of the space station visit.
“There appears to be at least a certain irony to referring to media coverage as free or unpaid when it is covering something that cost north of $40 million for which no other purpose was put forward than to get the media attention,” Boyle wrote.
The decision also concluded that while $4 million of the trip’s cost was reported as a shareholder benefit, that did not reflect an actual estimate.
Rather, while Laliberté and his chief financial officer “maintained that there was no shareholder benefit,” the CFO estimated the $4 million “to be the value of avoiding a dispute with the tax
NORTH OF $40 MILLION ... TO GET THE MEDIA ATTENTION.
authorities and the bad publicity if nothing was reported as a taxable benefit,” Boyle wrote. The judge said this was confirmed in a memo to the CFO from Deloitte in February of 2013.
In 2015, a majority stake in Cirque de Soleil was sold to global private equity firm TPG. Laliberté, who had been the controlling shareholder at the time of the contentious space trip, maintained a stake in the business and continued to provide strategic and creative input.
Calls and emails to two lawyers who represented Laliberté in the tax court case were not returned by deadline. Officials at Cirque du Soleil could not be reached for comment.