Written on behalf of Feigenbaum Consulting
Canadian resource company Cameco, one of the world’s largest producers of uranium fuel, recently announced that it would be receiving $10.25 million in costs after a protracted battle with the Canada Revenue Agency (CRA) over alleged tax evasion.
The dispute began when the CRA questioned Cameco’s corporate structure following the company’s reorganization in the late 1990’s.
At issue was whether Cameco used a Swiss subsidiary, Cameco Europe Ltd. (CEL) as a means of avoiding taxes through shifting profits to Switzerland (where corporate taxes are lower than in Canada). The CRA also claimed that Cameco had engaged in transfer pricing, esseti (one part of the corporation invoicing another part of the corporation in order to reduce taxable income in Canada).
All in all, the CRA claimed that Cameco, based in Saskatoon, had evaded at least $2.2 billion in taxes. Since 2008, the CRA moved $3.4 billion in CEL earnings made between 2003 and 2010 to Canada. In 2009, the CRA took the company to court.
Unsurprisingly, Cameco maintained that establishing the Swiss subsidiary was legal.
The trial in this matter began in fall of 2016, at which time the dispute between the two parties had already been underway for 8 years. After more than 65 days of trial, the parties finally delivered their closing submissions in September 2017.
The legal battle cost Cameco almost $30 million in legal fees.
In a 293-page decision issued in late 2018, the Tax Court of Canada found, among other things, that:
The reorganization that took place in 1999 and the uranium purchase and sale contracts to which CEL was a party are what they appear on their face to be. There is no deception and no sham. CEL’s trading profits did not result from any functions performed by the Appellant but from CEL’s bona fide trading activity pursuant to which it entered into legally effective and commercially normal contracts to purchase uranium from the Appellant and third parties and to resell that uranium at market prices.
The Tax Court concluded that the CRA’s reassessments on Cameco income earned in 2003, 2005, and 2006 should be reversed.
In a statement issued after the decision came out, Cameco’s CEO noted that:
Obviously, the reaction was super positive. We were very excited to get the decision. It was a vindication of our position, our company…Our employees have had to labour under this cloud and a lot of accusations, and the judge made it very, very clear — crystal clear — that Cameco has always followed the rules that the tax department has put out there.
The CRA subsequently appealed the Tax Court’s decision, noting in its notice of appeal that the Tax Court judge had erred in fact and in law by finding a particular section of the Income Tax Act that dealt with transfer pricing did not apply in this case.
The appeal is still pending and may take several more years to resolve.
The Issue of Costs
In the interim, the Tax Court issued a decision on costs, awarding Cameco $10.3 million, approximately one third of what it spent defending its position and about half of what it had requested.
In a statement issued following the costs decision, Cameco CEO noted that he was happy with the costs decision and optimistic that Cameco would be able to recover more of the amount originally claimed.
The CRA will be able to appeal the costs decision as well.
How Can We Help?
We will continue to follow developments in this matter and will provide updates as they become available. In the meantime, if you have questions about this case or about any of the issues that it raises, contact Mark Feigenbaum at Feigenbaum Law. We have many years of highly niche experience achieving favourable results for our clients involved in tax litigation both in Canada and in the U.S
Our proficiency with the tax systems in both countries gives us a unique perspective and thorough understanding of the policies behind tax regulations. This gives us a clear advantage when advocating on behalf of our clients and allows us to develop creative solutions, which those with familiarity in only one regime may not recognize. Additionally, our dual emphasis on tax planning and problem avoidance gives us an edge over firms focused on litigation exclusively. Tax disputes can be lengthy and expensive, but with our skilled representation, many tax controversies can be resolved before it becomes necessary to head to the courtroom.
If you are involved in a tax dispute, reach out. Our team will take the time to understand the details of your case and create a nuanced plan to achieve results. We offer services to clients in the US, Canada and around the world. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.