Cameco: Landmark tax case closing arguments

With $2.2 billion in estimated taxes at stake, closing arguments were recently concluded in a tax case that could reshape Canada’s transfer pricing landscape. An update from Richter LLP, featured in BNA International, explains.

With closing arguments now delivered in the Cameco transfer pricing case, it’s abundantly clear that this $2.2 billion dispute will have a big impact on Canadian tax and transfer pricing planning and compliance going forward.

Why is this case so relevant? In a March 2018 article, David Hogan and Andre Oliveira (Richter LLP) explain that the case cuts to the heart of the recurring debate about form versus substance. Whatever the final outcome, both taxpayers and the Canada Revenue Agency will undoubtedly use the decisions and lessons from this case as a critical reference in future interactions and disputes.

The article by Hogan and Oliveira was featured in Bloomberg BNA’s Tax Management Transfer Pricing Report (reproduced by permission).

This latest article follows the authors’ previous analysis, prepared at the trial’s opening, summarized below.

Update: January 13, 2017

Cameco Corp. (Cameco) is in court defending its practice of selling uranium through its subsidiary, Cameco Europe Limited (SwissCo). Given Switzerland’s lower tax rates, the Canada Revenue Agency (CRA) contends that Cameco adopted the practice to avoid taxes at the higher Canadian rate. Cameco’s management states that they did nothing wrong and that the CRA is simply looking to shift about $7 billion in foreign earnings between 2003 and 2015 to Canada.

If the CRA prevails, this would result in an estimated tax bill of over $2.2 billion for Cameco.

The Crown states that international companies have the right to engage in tax planning to minimize their tax liability, but the two sides disagree on how Cameco’s tax planning was implemented:

  • Cameco Canada argues that its Swiss affiliate was carrying on the business of buying and selling uranium, as demonstrated by the intercompany agreements and its conduct.
  • The Crown says SwissCo did nothing or nothing of value, so Cameco understated its Canadian taxable income substantially and should be reassessed under:
    • the Sham Doctrine,
    • the Income Tax Act’s Re-characterization Rule (paragraphs 247(2)(b) and (d)), or
    • the traditional transfer pricing rule in (paragraphs section 247 (2) (a) and (c))

In the article, David Hogan and Andre Oliveira (Richter LLP) outline the fundamental traditional transfer pricing issues debated and how the Sham Doctrine and the Re-characterization Rule will be tested to a degree never before seen in Canada. This case will likely become a critical reference for anyone involved in future transfer pricing planning and implementation.

The article by David Hogan and Andre Oliveira of Richter LLP was featured in Bloomberg BNA’s Tax Management Transfer Pricing Report (reproduced by permission).