Billions at stake for Cameco
Billions of dollars are in question as lawyers for Cameco Corp. and the Canada Revenue Agency walk into a Toronto courtroom next week. Alex MacPherson highlights what you need to know about the Saskatoon-based uranium miner’s Tax Court of Canada trial.
THE BASICS
A business practice known as “transfer pricing,” which involves the sale of goods between two arms of the same multinational firm, is at the heart of Cameco’s eight-year dispute with the Canada Revenue Agency (CRA).
The government agency contends that the mining company used its European subsidiary, Cameco Europe Ltd., to report the profits from uranium sales in low-tax Switzerland.
Since 2008, the CRA has moved $3.4 billion earned by Cameco Europe between 2003 and 2010 to Canada. The company says it expects the CRA to reassess the years 2011 through 2015, bringing the total amount under dispute to $7.4 billion.
If it loses all of its appeals, Cameco could face a $2.2-billion tax bill. Three of those appeals — for the 2003, 2005 and 2006 tax years — will be decided at the trial in Toronto. A decision is expected in late 2017 or 2018.
CAMECO’S POSITION
Cameco has maintained since the beginning that it has done nothing wrong.
“Obviously, we disagree with (the CRA’s) position,” Cameco spokesman Gord Struthers said in an interview.
There is a “sound business rationale” for the company’s transfer pricing arrangements, and it expects that view to be upheld when the court delivers its decision, he added.
Asked about the financial implications of losing up to $2.2 billion, Struthers said the company has “the financial strength to deal with a negative outcome, if that’s the case.”
However, weak uranium prices — which have prompted the company to close a northern Saskatchewan mine and report reduced earnings — “would constrain our potential to contribute to the economy in Saskatchewan and Canada,” he added.
THE EXPERT OPINION
All transfer pricing involves hypotheticals, meaning it’s not uncommon for companies and tax authorities to reach different conclusions about the value of goods shifted internally, said Devan Mescall, an Edwards School of Business corporate tax expert.
Litigation typically stems from that uncertainty — because companies try to minimize their tax burdens while agencies such as the CRA attempt to collect as much as possible — and the amount of time between transaction and dispute, Devan Mescall said.
“You can see how things that seem unfathomable do happen,” he said.
“What seemed reasonable five years ago, now that you know exactly how things played out, may not seem reasonable in the current situation.”
Cameco’s case is big by Canadian standards, but comparatively normal when compared to other multinational corporations locked in similar disputes — and it’s not at all clear what the court will decide, Mescall said.
“The public should wait to hold off jumping to any conclusions before this trial is completed. Just because the dollar value is large does not mean that there was any malfeasance or any wrongdoing.”
THE CRITICS’ VIEW
Cameco has no shortage of critics who believe it should abandon its appeal and simply pay back the $2.2 billion in back taxes the CRA says it owes.
One of them is Don Kossick, who was rebuffed in June when he tried to deliver to Cameco’s top executives a petition bearing more than 35,000 signatures from the national organization Canadians for Tax Fairness.
Kossick said Wednesday that Canadians have “woken up” to corporations exploiting the law to minimize their tax burdens. While the court hasn’t ruled if the CRA’s position is justified, the uranium mining company has a responsibility to Canada and Saskatchewan “to pay up,” Kossick said.
“I think they made a huge error in what they’ve done, and they should never have gotten involved in this. I think they should pay up.”