Posted by Leandro Iglesias.
The article “There Should be No Special Deal for Tax-Evading Cameco,” written by Murray Dobin describes Cameco, a Canadian based uranium mining colossus, that is currently facing charges in Federal Court by the Canada Revenue Agency for avoiding $2.2 billion in Canadian income taxes. As the article states, this case has been delayed for years and the fact that it has finally made it before a judge is good news. However, as we discussed in class, a lot of these forensic cases end up with companies settling and individuals are usually not held responsible. Because of that, it is important that Cameco’s case does not follow the same path, and that Cameco is held responsible for all its wrongdoings and not allowed to settle for any less. Cameco has been so arrogant in its tax avoidance, that it does not even bother to justify their tax planning and just states that they are following relevant laws and regulations. In order to bring attention to off-shore tax havens and to stop companies from abusing such tactics, Canada needs to make an example of Cameco.
As the article states, Cameco’s tax avoidance started in 1999, where they drafter Cameco drafted a 17-year uranium supply agreement at a fixed price of $10 a pound. In 1999, $10 a pound was the reasonable market value. However, as you can imagine, over the 17-year period it is obvious that price would change. As Dobin notes, “That world price went to almost $140 a pound in 2007 and is now around $35.” In order to understand the problem with the above scenario, we need to mention that the Canada corporate income tax is 27%, compared to the 10% tax rate in Switzerland. By the transfer pricing agreement, Cameco was paying Canadian income tax on revenue up to that $10 threshold, but any revenue above that was being paid in Switzerland, at a much lower 10% tax rate. As stated above, prices increased substantially from the 1999 market value, and so Cameco was benefiting of this transfer pricing agreement. The reason why this is a big deal is because the uranium was in Canada, and most of the uranium was also sold in Canada. Cameco would purposely sell its uranium at a lower $10 price to its subsidiary in Switzerland, and then recognize any revenue above $10 in Switzerland instead of in Canada, in order to avoid paying a higher Canadian income tax rate. However, as noted, an insignificant amount of revenues was actually coming from Europe.
This case sheds light on the intriguing topic of transfer pricing. Although Cameco is not a known company in the US, this case relates to the current news on Apple. Apple is facing a US$15 billion tax bill from the European Commission for its abuse of transfer pricing in Ireland. Many companies use transfer pricing to avoid paying higher taxes, which is not illegal. However, Cameco’s revenue is not generated in Switzerland, and they have no full-time employees or even an office location in Europe. Dobin states, “Virtually all the substantive work was performed in Canada. All of the uranium is mined in Canada, all of Cameco’s sales are negotiated and completed in Canada, and literally all of its profits are generated in Canada. The company’s scheme is pure scam which is why fair-tax activists in Saskatchewan call the company Scameco.”
There are ways in which transfer pricing can legally be used to decrease their tax burden, however companies are not allowed to create operations in foreign countries with the sole purpose of tax avoidance. As the article states, there is no operating business reason for Cameco to be in Europe; they neither mine uranium there or make sales abroad. The sole purpose of Cameco in Europe is tax evasion, and as a result they should be found guilty of tax evasion.
Finally, I found this article intriguing because it relates to topics we discussed in our “Legal Issues” class, and also in our Forensic Accounting class. Transfer pricing is just one of the ways in which corporations are boosting their profits, and loop-holes will always exist, hence why tax law and accounting law is always changing. Because of this reason, I believe the demand for forensic accountants is increasingly growing. Furthermore, when cases like Cameco are brought up, they usually all end up the same way, with corporations settling with the Government. I think it is important for corporations and individuals to be held responsible for their wrongdoings, and until that happens, corporations will keep on believing they can get away with it. Forensic accountants should play a bigger role in discovering and investigating cases like the one described in this article.
Leandro is a graduate accounting student with a concentration in forensic accounting at the Feliciano School of Business, Montclair State University, Class of 2017.
Posted by ZaAsia Thompson-Hunter.
The European Union isn’t happy with Honeywell and DuPont because they believe they are breaking antitrust rules. Honeywell and DuPont are the only two companies that produce the chemical R-1234yf. This chemical is used to produce the only car-coolant that meets the standards on the European Union’s greenhouse-gas emissions. By working together, the European Commission believes that Honeywell and DuPont are limiting the supplies of the coolant sold to other carmakers and furthermore reducing technical development. “The investigation, triggered by French company Arkema SA (AKE), also examined Honeywell’s alleged ‘deceptive conduct’ when the product was endorsed by a car-industry trade group, and whether it charges ‘fair and reasonable’ license fees to rivals who want to produce the product.” This investigation may lead to fines as much as 10% of yearly sales.
DuPont plans to fight against all accusations made by the EU because they feel they have not violated any policies and have been abiding by all the rules and laws that apply. In an e-statement, DuPont says they “will fight this every step of the way, as it has no basis in law or fact.” Additionally, in this ongoing case, Honeywell responded by saying the EU’s allegations were “baseless and conflict with the EU’s own laws that encourage collaboration on development,” according to an e-mailed statement.
ZaAsia Thompson-Hunter is a business administration/psychology major at Montclair State University, Class of 2017.
