Saturday 1 June 2013

Cameco uses dummy corporation to avoid taxes

Cameco's operation at Cigar Lake, SK
For the past few months the media has been carrying stories on how large transnational corporations are using offshore dummy corporations to avoid paying taxes in the countries where they are actually based. The corporations identified include Apple, Microsoft, Staples, Hewlett-Packard, Starbucks, Google, Amazon, and many more.

This is nothing new. The collapse of energy giant Enron Corporation in 2001 revealed to the general public all the tricks of the modern transnational corporation. Indeed, executives from oil and gas corporations denounced U.S. government actions against Enron and its corporate officers, arguing that these practices were common to all in the industry.

Do Saskatchewan corporations dodge taxes?
What about the large corporations that have major operations in Saskatchewan? A few years back when I was researching Saskatchewan’s oil and gas industry I asked the provincial ministry of finance if any of our corporations used similar practices. I was given the brush off. This was a federal and not a provincial responsibility. No answers were forthcoming.

But now we have clear evidence that these practices are used by Saskatchewan based corporations.  In early May of this year it was revealed that the Canada Revenue Agency has challenged the practices of Cameco Corporation. While this story made the national press, it seemed to escape the attention of the Saskatchewan media and our political leaders.

Cameco as a case study
In 1999 Cameco created a subsidiary, Canada Europe Ltd., and located it in Zug, Switzerland. Switzerland is well known as one of the favourite low tax hosts for corporations seeking to avoid paying normal corporate tax rates. Cameco “sells” the uranium it extracts in Saskatchewan to Cameco Europe at the very low prices that were set in 1999. Cameco Europe then sells the uranium at the market price. CRA reports that Cameco is allocating its profits to Cameco Europe and recording very low profits for its operations in Saskatchewan.

The Ontario media reports that over the past ten years Cameco has avoided reporting income of $4.9 billion which allowed it to save $1.4 billion in federal corporate taxes. The corporate tax rate in Switzerland is 5% compared to 27% in Canada.

The Globe and Mail (May 1, 2013) reports that a study of Cameco by Veritas Research Corporation concluded that Cameco in Saskatchewan “performed virtually all operating functions” for Cameco Europe. They concluded that all of Cameco Europe’s profits should have been declared in Canada and taxed at Canadian levels.

Why pay taxes in Saskatchewan?
In Saskatchewan the uranium industry enjoys very low royalties and taxes. In recent years annual  uranium sales have exceeded $1 billion. But total royalties and taxes paid to the provincial government have averaged only around eight percent of sales.

Why should this matter? When corporations do not pay taxes to the provincial government, programs are cut or else revenues are raised by additional taxes on individuals. In this boom period for Saskatchewan, royalties and taxes on resource extraction are still among the lowest in the world, and our governments are cutting services.

 It is most important for corporations operating in the area of extraction of non-renewable resources to pay high taxes. The reality is that all the large corporations operating in the resource extraction area in Saskatchewan have a majority of their stock held by people who do not live here. In fact, most of them are majority owned by shareholders who live outside the country. A system of low resource royalties and taxes on corporate profits means the surplus rent from resource extraction does not flow to the owners of the resource, the people of Saskatchewan, but flows out of the province and the country.

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