Silver Wheaton faces potential C$353m CRA tax bill for offshore revenue
TORONTO (miningweekly.com) – The world’s largest precious metals streaming firm Silver Wheaton is set to challenge the Canadian Revenue Agency (CRA) over the agency’s decision to reassess the company’s 2005 to 2010 tax years and collect taxes on income earned by Silver Wheaton’s offshore subsidiaries.
The TSX– and NYSE-listed company, which provided financing to miners in exchange for the right to buy a share of their future metal output, reported late on Thursday that it had received notices of reassessment from the CRA, in line with the CRA proposal Silver Wheaton said it had received early in July.
According to the notices of reassessment, the CRA was looking to increase Silver Wheaton’s income subject to tax in Canada for the relevant tax years by about C$715-million, which would result in federal and provincial tax of C$201-million. The CRA was also seeking to impose transfer pricing penalties of about C$72-million and interest and other penalties of C$81-million for the period.
The total tax, interest and penalties sought by the CRA for the relevant taxation years amounted to C$353-million.
Management held that Silver Wheaton had filed its tax returns and paid applicable taxes in compliance with Canadian tax law and the company intended to “vigorously and expeditiously defend its tax filing position”.
President and CEO Randy Smallwood was at a recent Toronto investor presentation at pains to defend Silver Wheaton’s position that its Cayman Islands-registered subsidiaries, where it took delivery of precious metals under its forward-sales contracts, were independent from the Canadian parent. It was up to the sovereign State of the Cayman Islands to determine the corporate tax rates the subsidiaries would be subjected to, which just happened to be 0%, he advised.
“Any Canadian company with international assets should be concerned,” Smallwood stated, arguing that the CRA was overreaching its jurisdiction.
The company’s position was that income earned in Canada related to mines located in the country and should be subject to Canadian tax, whereas income earned outside of Canada by foreign subsidiaries, relating to mines located outside of the country, should not be subject to Canadian tax, which was common for Canadian companies with foreign operations.
Silver Wheaton intended to file a notice of objection within the available 90-day period provided under the Income Tax Act and that it would be required to make a deposit of C$177-million, representing half of the reassessed amounts. The company would seek to post security in the form of a letter of credit for this amount as opposed to a cash deposit.
While the notice of objection would be reviewed by the CRA’s appeals division, Silver Wheaton also had the right to appeal directly to the Tax Court of Canada, once at least 91 days had passed since the filing of any notice of objection.
Other Canadian miners had also been subject to CRA investigations related to income earned outside of Canada and transfer pricing, including uranium producer Cameco and gold-focused royalty and streaming company Franco–Nevada.