Tax season is right around the corner for Canadians. It can be a stressful time for some as they struggle to get all their financial ducks in a row.
But this tax season a court room drama of sorts is playing out in federal tax court in Toronto, where a case involving a Canadian mining corporation and its Swiss subsidiary could have serious repercussions going forward.
The Canada Revenue Agency (CRA) is arguing in its case against Cameco that the Saskatchewan based mining company owes over $2 billion in back taxes.
The CRA argues that Cameco set up a subsidiary in Switzerland, which has a lower corporate tax rate than Canada, so it could avoid paying certain taxes to the Canadian government.
Gail Dugas is the communications coordinator for Canadians For Tax Fairness, an advocacy group which pushes for progressive tax policies.
She said the case involving Cameco is important for many reasons.
“Cameco is one of the largest, multinationals that operates in Canada and it’s very, very profitable. It mines non-renewable resources and sells them globally at a really good profit.”
Dugas said that by setting up its Swiss subsidiary, Cameco could report lower profits for its Canadian operations and a lower tax rate.
According to Dugas this process is not new and that moves like this have been going on for year. Dugas added that it is a growing practice among Canadian multinationals.
For its part, Cameco disputes the government’s case.
In a news release the company argued that it has not avoided paying any taxes that it owes.
“Cameco has followed all of the rules and paid all taxes owed under the laws of Canada and other jurisdictions. The corporate structure and transfer pricing arrangements applied by Cameco are commonly used by other multinational companies in Canada and were acceptable to Canada Revenue Agency for several years.”
Dugas said this case is important because there is the real potential that the CRA may decide to settle with Cameco instead of continuing to fight in court.
“(It) would be very significant for Canadians because then there is no real kind of example or real consequence.”
Dugas said the CRA is usually worried it will not be able to win cases in court which forces them to settle and in turn encourages more of the same behavior.
Dugas explained her group was optimistic about these fights going forward because the federal government had recently announced that it planned to spend an additional $ 400 million to fight tax evasion.
Dugas said Canadians For Tax Fairness is currently looking at several other Canadian multinational companies which have foreign based subsidiaries. She said that many of the companies are in the top 60 companies listed on the Toronto Stock Exchange.
“We’ve got hundreds of subsidiaries; the top five Canadian banks have subsidiaries in tax havens.”
According to Dugas, Gold Corp and Saskatchewan based Potash Corporation also have subsidiaries set in countries which have lower tax rates then Canada as well.
Dugas said it can be difficult to find out what the actual purpose of a specific subsidiary is, but said when companies have several subsidiaries set up in certain jurisdictions this should set off alarm bells.
“Why you need five subsidiaries, let’s say in Delaware which is one of the worst places to set up subsidiaries, it’s like Barbados and Bermuda.”
Monika Cule, a professor of economics at the University of Regina who specializes in the economics of tax evasion, said current tax codes are written in ways that make the system very complex.
“Tax avoidance is using the legal loopholes to pay a lower tax liability, tax evasion is completely illegal, (using) book keeping tricks to evade the tax liability.”
Cule said much has been written about issues surrounding tax evasion and avoidance and what has been written generally comes to a similar conclusion.
“The poor evade, the rich avoid.”
Cule is not familiar with the Cameco case specifically; but said it is not uncommon among multi -national corporations to have subsidiaries set up in other jurisdictions which have lower tax rates.
“Companies engage in those practices all the time, so it comes down to having a tax code that is more simple, so these loopholes are closed.”
Cule said tax codes are complex pieces of legislation and that an entire code has never come into effect all at once and that amendments have in the past contradicted other parts of the legislation.
Cule added when major multi nationals engage in this kind of behavior it has wide ranging effects.
“It as practice, we find it everywhere and it is widespread and in a way because it is widespread, other companies have to follow suit to maintain some competitive advantage and reduce their cost.”