Cameco win in multibillion-dollar CRA dispute sparks calls for federal tax reform

Advocacy group, CRA say erosion of Canadian tax base at stake, but Cameco argues it followed both the letter and the intent of the law and calls treatment from federal agency ‘incredibly disheartening’

Cameco President and CEO Tim Gitzel called his company's treatment by the federal tax agency ‘incredibly disheartening.' Photo courtesy of Cameco

Saskatoon-based uranium producer Cameco Corp. is celebrating another win in a drawn-out legal dispute with the Canada Revenue Agency (CRA). 

It all began 13 years ago when the CRA reassessed Cameco for $2 billion in unpaid taxes and penalties over multiple tax years for alleged offshore “profit shifting.” The federal agency has since failed successive attempts to make that case in court.

The Supreme Court of Canada denied the CRA’s request for leave to appeal a June 26, 2020 decision by the Federal Court of Appeal last Thursday, upholding a Sept. 2018 ruling by the Tax Court of Canada in Cameco’s favour.

Cameco’s marketing and trading structure involving foreign subsidiaries, related transfer pricing for uranium sales and purchases were found to be in compliance with Canadian law for the 2003, 2005 and 2006 tax years while 2007 through 2014 remain disputed.

“This entire saga has gone on far too long,” Cameco President and CEO Tim Gitzel said of the dispute that he said has cost his company $5.5 million in reassessment fees on top of $10.25 million in legal fees, so far.

Cameco wants those amounts to be paid back by the CRA with interest where applicable.

The company has been awarded up to $17.9 million in disbursements for costs by the Tax Court and the Court of Appeal in their previous rulings.

“We will be asking CRA to accept the clear and decisive rulings the courts have delivered and apply them to subsequent tax years so that we can focus on managing our business for the benefit of all our stakeholders,” Gitzel said.

“If CRA feels the laws aren’t written the way they want, it’s clear they need to make the case to government to change those laws moving forward rather than unfairly dragging Canadian businesses through long and costly legal processes.”

The CRA is reviewing the court’s decision, having said in a written statement that the case is significant because it relates to “international profit shifting and erosion of Canada’s tax base” which the agency said undermines the government’s ability to provide benefits and services to Canadians.

As Cameco has pointed out though, so far, the courts haven’t agreed.

Changing the tax laws is something pro-CRA advocacy group Canadians for Tax Fairness (C4TF) director Toby Sanger can agree on. 

Sanger told the Prince Albert Daily Herald that he now also believes tax laws need to be changed through legislation at the federal level, and that the issue is bigger than just Cameco versus the CRA.

C4TF is now calling on the Trudeau government to change tax laws by closing loopholes and to impose more regulations on big companies such as Cameco.

“Ottawa’s weak corporate tax laws make it extremely challenging and costly to hold powerful multinationals accountable. Without reforming rules around profit-shifting and tax havens, corporations will continue costing Canadians billions in lost revenues that could be used to help pay for the pandemic and recovery,” Sanger said.

“This is a very important precedent-setting case over the use of transfer pricing and ‘arm’s length’ subsidiaries that goes to the heart of how many large multinational corporations avoid taxes. The Supreme Court’s dismissal of this case is a clear message to the federal government that they must reform laws to prevent this type of abuse,” Sanger said.

Sanger said Cameco shifted billions in profits to a small trading subsidiary in Zug, Switzerland while declaring “little or no profits in Canada” and paying “little or no corporate income tax” on some of its dealings. This has become common practice among multinationals seeking to avoid “paying their fair share,” he said.

Discussions are underway through the Organization for Economic Co-operation and Development (OECD) to strengthen global tax rules. But in the meantime, “there’s no reason” Canada can’t introduce significant reforms on its own, Sanger said.

The notion of paying a fair share rings true to some Saskatchewan residents.

Since 2014, when Saskatchewan Citizens for Tax Fairness (SCTF) sponsored a billboard in Saskatoon calling for Cameco to “Pay Up,” the slogan “Pay Up, Cameco” has become something of a rallying cry for tax activists in the province.

Cameco extracts most of its uranium at the Cigar Lake mine in northern Saskatchewan, where the uranium industry is a major employer and driver of the economy.

The company engages in partnerships with communities on development initiatives and sponsors other projects in the north —like a $1 million COVID-19 relief fund in 2020.

A portion of Cameco’s revenue also goes to the Northern Municipal Trust Account (NMTA) to fund municipal projects as part of the cost of doing business in the north.

When mining operations have sporadically shuttered due to COVID-19, Cameco hasn’t laid off workers, having instead placed them on paid leave between reopenings.

But SCTF organizer Don Kossick said the value of resources that Cameco extracts and the money saved through “tax loopholes” pales in comparison to what it gives back.

Kossick said taxes should be paid out where profit is earned — as opposed to in other countries through corporate tax structures that save money.

“That wealth is not coming back to Saskatchewan. That wealth is being taken and put into tax loopholes and tax havens elsewhere. Since that wealth is created here there should be something coming back that reflects the amount of that wealth,” Kossick said.

Kossick said that the province should have supported the case going through, because “this money directly affects the people of Saskatchewan.”

“It’s an incredible amount of money that is owed to the people of Canada and Saskatchewan, we’re talking upwards into the billions,” Kossick said.

“I think it’s up to all of us as citizens to really be on top of these issues and do everything we can to pressure governments to change those laws. So, we don’t see these tax loopholes existing.”

Gitzel said his company has followed the rules and complied with both the letter and intent of the law throughout.

“This was confirmed unequivocally through the court process, and we are happy to have these three tax years concluded in our favour,” Gitzel said.

While mine closures due to COVID-19 have added uncertainty to uranium markets, stocks are up 21 per cent this year after jumping 50 per cent in 2020 in the biggest yearly gain since 2009. But the case continues to loom over Cameco’s prospects.

The CRA still holds about $785 million in reassessment funds from Cameco that the company said is tying up a “significant portion” of its financial capacity.

Cameco wants that money back from the CRA given the “overwhelming clarity” of court decisions so far.

Gitzel said his company has had to navigate a period of challenging global markets and the economic upheaval of the COVID-19 pandemic with the uncertainty caused by this tax dispute “significantly impeding” its ability to maneuver.

“It has been incredibly disheartening for us, as a Canadian company, to have an agency of our federal government continue to pursue a flawed argument for 13 years, even after receiving two court decisions completely in our favour during that time,” Gitzel said.

“To say it has been unfair to our employees and the many other stakeholders who count on our company would be an understatement.”