stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Fight with CRA could cost Loblaw $350-million
space
space
By JOSH O'KANE
  
  

Email this article Print this article
Thursday, November 9, 2017 – Page B1

With Canadian-owned offshore companies facing increasing scrutiny, a Loblaw Cos. Ltd. affiliate is fighting the Canada Revenue Agency over taxes on the earnings of a Barbadian subsidiary, in a battle that could cost the grocer more than $350-million.

The case, which began with an appeal launched by Loblaw Financial Holdings Inc. at the Tax Court of Canada in 2015, is actively continuing: a teleconference among the parties took place just last week, and hearings are scheduled for April, 2018, according to court documents.

The story begins in the early 1990s, when Loblaw set up a company in Barbados using money generated outside of Canada, including from U.S. supermarkets. It was soon named Glenhuron Bank Ltd. and licensed as an offshore bank. It invested in U.S.-dollar debt and derivatives, managed assets for others in exchange for fees, and for several years managed a portfolio of loans provided to independent distributors of products sold by indirect units of Loblaw parent George Weston Ltd., Loblaw filings say. A Crown filing indicates that Loblaw transferred nearly half a billion U.S. dollars to the bank, largely from other international affiliate companies.

"Barbados was selected for a number of reasons, including that it had an established and trusted legal system, a well-educated local work force, an international tax treaty with Canada, and a favourable tax rate compared to other tax treaty countries," Loblaw spokesman Kevin Groh said.

Loblaw dissolved the bank in 2013, the company says in one document, in order to use the money to help fund its $12.4-billion takeover of Shoppers Drug Mart Corp. But by then, the CRA had begun to ask hard questions about the taxes Loblaw was paying on the bank's earnings.

At the core of the case is a conflict over whether certain investment income from Glenhuron Bank was eligible for an Income Tax Act exception afforded to "foreign banks" that would exempt it from being taxed as income in Canada.

Loblaw believes the subsidiary should have been granted that exemption, claiming it fulfilled all qualifications of a foreign bank, including that it had more than five full-time active employees and primarily did business with arm'slength persons. But the Crown insists it shouldn't qualify, and that Loblaw should pay taxes on $473million of the bank's income.

"It's a typical struggle," said Art Cockfield, a tax-law professor at Queen's University who has worked at the University of the West Indies in Barbados. It was perfectly normal - and possibly competitively advantageous - for Loblaw to set up the offshore subsidiary, he said, adding that a dispute such as this does not suggest the CRA believes a company has done anything illegal.

Loblaw, Canada's largest grocery chain and retailer, said in its latest annual report that if CRA were to prevail, the result would have "a material adverse effect on the Company's reputation, operations or financial condition or performance."

Also under dispute have been whether CRA calculated the $473million correctly, and whether the Crown properly invoked "general anti-avoidance rules," which are designed to deny tax benefits in instances where it believes there is a misuse of Income Tax Act provisions.

In 2005, the CRA began to audit the company's 2001 taxation year, eventually expanding the audit's scope through to 2010. It found the company hadn't reported $473-million in "foreign accrual property income" - or FAPI, which encompasses certain passive income from investments, such as interest and royalties - from the taxation years 2001 through 2005, as well as 2008 and 2010.

Loblaw said in its 2016 annual report that its reassessment total was $351-million including interest and penalties, encompassing the taxation years 2001 through 2011.

The company believes the CRA could also issue similar reassessments for 2012 and 2013. "No amount for any reassessments has been provided for in the Company's consolidated financial statements," the report says.

Many Canadian companies operate international subsidiaries in Barbados, which Statistics Canada said in April was home to the thirdhighest amount of Canadian direct investment abroad - with an estimated $68.3-billion there at the end of 2016.

The Globe and Mail first reported on the Loblaw-CRA dispute regarding Glenhuron Bank income in 2016. As part of the Paradise Papers document leak this week, the Toronto Star and CBC reported that Loblaw had set up two companies in Barbados and Bermuda involved with insuring balances from President's Choice Financial MasterCards.

In a statement, Mr. Groh, the Loblaw spokesman, said a company called Glenhuron Holdings Ltd. - first established in Bermuda and separate from Glenhuron Bank and the CRA dispute - "had an interest in a reinsurer that provides a group creditor insurance program offered to PC Mastercard's customers."

Both companies, he said, "paid all applicable taxes, were known to the CRA and were dissolved in 2013 to fund our Canadian business."

A CRA spokesman said the agency was unable to discuss the case, citing confidentiality provisions in the Income Tax Act, but said that increased funding over the past two years have allowed it to "hire more auditors to review filings of large multinationals and improve its risk assessment tools," and can now risk-assess all large multinational companies annually.


Huh? How did I get here?
Return to Main William_Thorsell Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page