National Post (National Edition)
CIBC SETTLES TAX FIGHT OVER ENRONRELATED EXPENSES.
Dispute had persisted for decade-plus
TORON TO • Canadian Imperial Bank of Commerce said Thursday that it has settled a long-running tax battle with the Canada Revenue Agency over the lender’s attempts to deduct legal settlements tied to its alleged dealings with infamous U.S. energy company Enron.
The dispute between CIBC and the CRA had been going on for years, starting when the bank deducted Enron-related settlement amounts of approximately $3 billion (including interest and legal costs) from business income for its 2005 and 2006 tax years.
However, the CRA disallowed those deductions, claiming they had been offside under various parts of the Income Tax Act. CIBC appealed to the Tax Court of Canada in 2010, and after much legal wrangling, a trial was scheduled to begin this year.
On Thursday, though, CIBC announced first-quarter financial results and that a settlement agreement had been reached with the CRA in January 2019. The bank said the deal “provides cer- tainty with respect to the portion of the Enron expenses that are deductible in Canada.”
CIBC also said the impact of the agreement resulted in it recognizing a net $38-million tax recovery in the first quarter.
“This recovery was determined after taking into account the portion of the Enron expenses that we expect to deduct in the United States, but which has not yet been agreed to by the Inter- nal Revenue Service, and the taxable refund interest that we expect to collect from the CRA upon the reassessment of certain prior year tax returns in accordance with the Agreement,” CIBC said in its first-quarter financial disclosures. “It is possible that adjustments may be required to the amount of the tax benefits recognized in the United States.”
There are “still some loose ends to tie up,” but they would not likely be material to the bank, according to Kevin Glass, CIBC’S chief financial officer.
“And so from an overhang perspective … for sure, it’s behind us,” Glass said in response to an analyst question during a Thursday morning conference call.
Last November, CIBC had said in financial filings that if it had been successful in defending its entire tax position, it would have realized an accounting tax benefit of $231 million and taxable refund interest of approximately $210 million. If it had entirely failed to defend its tax position, CIBC warned it could face additional expenses of around $977 million.
A spokesperson for the CRA said Thursday that the confidentiality provisions of the Income Tax Act prevent it from discussing details of the CIBC case.
The settlements stemmed from lawsuits launched against CIBC and other financial institutions following Enron’s filing for bankruptcy protection in 2001. The lenders had been accused of helping to conceal the condition of Enron’s deteriorating finances.
Without admitting wrongdoing, CIBC agreed in 2005 to pay US$2.4 billion to settle a class-action lawsuit brought on behalf of Enron shareholders. The bank also struck a Us$250-million settlement with Enron.
IT IS POSSIBLE THAT ADJUSTMENTS MAY BE REQUIRED.