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An increase in prices created “substantial” profits for Cameco’s Swiss subsidiary from selling uranium, the decision said. Meanwhile, the federal government has pointed out Cameco Canada reported losses of $154 million and $166 million in 2005 and 2006.
Ottawa is alleging that Cameco expected uranium prices to rise and aimed to lower its taxes by shifting profits to a one-man company in low-tax Switzerland. The federal government wants those Swiss profits reallocated to Cameco in Canada, and the CRA has issued reassessments that would add approximately $483.4 million to Cameco’s income for those three tax years.
To do so, the CRA relied on rules around transfer pricing for its reassessments, which require cross-border transactions between related parties to have similar terms and conditions as those involving “arm’s length” companies. If they do not, the CRA can make adjustments and penalize the taxpayer.
Cameco appealed the reassessments to the Tax Court, which sided with Cameco on the transfer-pricing issues and found, contrary to the government’s opinion, that the transactions were not a “sham.”
The federal government appealed only the transfer-pricing matter, arguing Cameco would not have entered into any of the transactions it did with its Swiss subsidiary with an “arm’s length” company. However, the Federal Court of Appeal also sided with Cameco and dismissed the government’s appeal.
“As all the transactions between Cameco and its subsidiary were done on market terms, the government’s allegation that there was ‘profit shifting’ was unfounded,” wrote lawyers from Osler, Hoskin & Harcourt LLP, which represented the company. www.osler.com/en/resources/regulations/2020/federal-court-of-appeal-dismisses-crown-s-appeal-in-cameco