Quebec Revenue vs. JTI Macdonald

 

August 10, 2004
Court order issued supporting Quebec Revenue department's tax assessment against JTI Macdonald for approximately $1.4 billion in duties, penalties and interest in relation to charges of conducting contraband activities from 1990 to 1998.

August 24, 2004
JTI-Macdonald files an application of “Companies’ Creditors Arrangement Act (CCAA)” to the Ontario Superior Court of Justice. Filing the CCAA makes it possible for JTI-Macdonald to to continue business operations normally. Judge Farley of the Ontario Superior court grants request.

June 27, 2005
Nova Scotia files a claim against JTI-Macdonald of $326 million. Ontario, British Columbia and New Brunswick are reported to have also filed claims.

 

June 26, 2009
Ontario Superior Court of justice sets a deadline for stay of proceedings until March 10, 2010.

April 13, 2010
Settlement reached with all provinces and the federal government


For a full list of documentation see www.blgcanada.com/jti




Media Coverage


 

JTI-Macdonald slapped with $1.4B tax bill:; [Final Edition]
William Marsden. The Ottawa Citizen. Ottawa, Ont.: Aug 14, 2004. pg. D.1.Fro
 

Quebec court orders tobacco giant to pay up -- immediately

MONTREAL - The Quebec government has assessed assessing tobacco giant JTI-Macdonald Corp. almost $1.4 billion for lost taxes because of cigarette smuggling in the 1990s.

The tax levy is only the latest government action against the Toronto company. JTI-Macdonald already faces a $1.5-billion federal lawsuit in Ontario plus fraud and conspiracy charges laid by the RCMP because of tobacco smuggling.

The Quebec government issued its tax assessment against the company Tuesday and obtained a Superior Court order Wednesday for immediate payment.

The claim is for the tax period January 1990 to December 1998. It assesses the company for $440,473,515.99 in tobacco taxes, $283,629,824.76 in penalties and $640,327,016.76 in interest, which continues to accrue.

Most of the lost tax revenue comes from the peak smuggling period of 1990 to 1994. During that time, the company manufactured Canadian- brand cigarettes such as Export A in Puerto Rico, then shipped them via Aruba and the United States to smugglers' warehouses in Buffalo, New York, and the Akwesasne reserve, near Cornwall.

Quebec Revenue Minister Lawrence Bergman said yesterday the government will "exercise all rights existing in our favour" to get the money from JTI-Macdonald.

"Ninety-nine per cent of Quebecers pay their taxes to the penny and we want to make sure there is a sense of equity."

If JTI-Macdonald doesn't pay, the government has the power to seize cigarette revenues from retailers.

JTI-Macdonald called the Quebec assessment extraordinary and stated that it will "take all necessary and appropriate measures to defend its lawful business."

The company noted that Quebec is a party to the criminal charges in Ontario. The company criticized the government for ignoring the "presumption of innocence."

The tax assessment is the result of an audit that came to light in January, when JTI-Macdonald sought a court injunction to stop Quebec from seizing 1990-98 sales and export records from its plants in Canada and Puerto Rico.

The smuggling forced Quebec to slash tobacco taxes in 1994. The government estimated that during the 1990s, contraband cigarettes comprised 60 per cent of market.

Francois Damphousse, Quebec director of the Non-Smokers Rights Association, welcomed move against JTI-Macdonald but wondered why it wasn't also going after the Imperial Tobacco and Rothmans tobacco firms.

"These companies were also involved in the smuggling," he said. "They were just not as obvious about it."

Several years ago, the federal government launched a $1-billion lawsuit against JTI-Macdonald in the United States. The U.S. Supreme Court later quashed the suit, claiming Canada had no right to seek tax relief in the U.S.

Last year, the federal government sued JTI-Macdonald for $1.5 billion in an Ontario court. At the same time, the RCMP laid criminal charges against the company and eight of its executives. That case is yet to go to trial.

The RCMP accuse the company of committing fraud and conspiracy by knowingly selling cigarettes to smugglers in the 1990s. Prosecutors allege the company committed the biggest fraud in Canadian history.

JTI-Macdonald executives, including the company's former chief executive, Pierre Brunelle, face one count each of conspiracy and six counts each of fraud for crimes they are alleged to have committed from 1991 to 1996.


 

Quebec recruits taxman for war on tobacco:; [Final Edition]
Danielle Smith. Calgary Herald. Calgary, Alta.: Aug 28, 2004. pg. A.23
 

When Canada says it's a country that respects the rule of law, it means it believes that every member of a society, even its rulers, must follow the law. But the way the Quebec tax department is acting these days, you have to wonder.

Quebec's Revenue Minister, Lawrence Bergman, woke up one day and decided to force Canada's third largest tobacco company into bankruptcy -- at least, so it seems. Earlier this month, the Quebec government dropped a $1.36 billion tax bill off on the doorstep of JTI-Macdonald (the makers of Export A cigarettes), and demanded payment by Aug. 23. When JTI didn't comply, the rapacious tax collectors began seizing revenues from the company's retailers. If JTI hadn't gone to court to stop the looting, it would have been history in a few months.

"The money belonging to Quebecers is non-negotiable," said Bergman. Tough talk, except the Quebec government hasn't got a moral leg to stand on.

The province claims it is owed the money because JTI was deliberately trying to defraud the government of tax revenues by aiding and abetting smugglers. Between 1990 and 1994, the company manufactured cigarettes in Puerto Rico, shipped them via Aruba to smugglers' warehouses in Buffalo, N.Y. and Ontario's Akwesasne reserve, which the smugglers then brought into Quebec and sold tax- free.

However, none of this has been proven in court; though charges have been laid against current and former executives of JTI, the criminal case is not set to go to trial until next year. Besides, the real criminals are the smugglers who brought the contraband into the Canadian market, not the company that manufactured the product.

In any case, Quebec should have waited for a guilty verdict before pouncing in to claim the cash. That a minister can declare a company guilty by government edict without due process of the law, and start stealing their assets, is an action we'd expect of a tinpot dictatorship, not a liberal democracy.

The size of the tax bill itself raises questions about its legitimacy. Of the $1.36 billion, only $440.5 million is for unpaid taxes, whereas $283.6 million is assessed penalties, and $640.3 million (and counting) is accumulated interest. Penalties and interest worth 210 per cent of the original tax bill?

Evidently, usury laws don't apply to government either.

But even if the company is found guilty at trial, it has only about $115 million a year in pre-interest income, and yet the Quebec government is asking the company to pay 10 times that amount. It simply can't be done. With JTI-Macdonald generating $780 million a year in revenue, and paying $300 million in expenses and $365 million in taxes, this golden goose is better kept alive than dead.

Big tobacco is the most over-regulated, over-taxed and over- monitored industry in North America. There isn't a person alive who doesn't know cigarette smoking is addictive and harmful to one's health. The fact is, there is still a demand for the product. Despite the high taxes, ban on advertising, prohibition on smoking in nearly every public place, and extensive anti-smoking ad campaigns, people keep on smoking.

Even if the government drove every legitimate tobacco manufacturer out of existence, all it would do is hand the industry over to the black market. Not only would that deprive the Quebec government of its treasured tobacco taxes, but it would also deprive it of its share of the tobacco companies' corporate profits and throw thousands of tax-paying tobacco employees out of work. Some victory.

Meanwhile, the Akwesasne Mohawk reserve remains the eastern centre of cigarette smuggling, which has seen a resurgence.

The RCMP report a 33 per cent increase in seizures this year, with four months to go. But it's not JTI that's been implicated this time -- native brand cigarettes are being manufactured legally in the U.S., then smuggled across the river.

The reason is simple -- there are huge profits to be made. Native smokes sell for $23 for 200 cigarettes, which is one-third to one- quarter the price of legal, heavily taxed name brands. And, as it happens, tobacco companies are also reporting a 17-fold increase in the hijacking of tobacco shipments and convenience store robberies.

Government overtaxation is creating a national surge in criminal activity that is fattening the bank accounts of organized crime.

Destroying JTI-Macdonald won't make a dent. The company has already changed its business practices to prevent its products from falling into the hands of organized crime, by limiting its duty- free sales to the retail operators and suppliers of duty-free shops at airports, cruise boats and border stops. A computerized system controls all orders and shipments, which makes it impossible for company employees to sell goods to unregistered customers.

JTI has already done its part; now, it's up to governments to do theirs.

The only way to stop smuggling is to reduce the taxes. In theory, high tobacco taxes should curb smoking, but as long as consumers are able to get cheap smokes from a black market supplier, the impact is nil. Smokers are going to damage their bodies anyway; let's at least stamp out the criminal element that seeks to profit from it.

dsmith@theherald.canwest.com


Four more provinces join tobacco smuggling suit
Updated Tue. Jun. 28 2005 8:10 AM ET

Canadian Press

VICTORIA -- At least four provinces served notice on Monday that they will join the federal government and Quebec in a law suit against tobacco company JTI Macdonald Corp., to recover money lost during the 1990s when governments dropped taxes to curb smuggling.

The exact amount of money the governments are seeking in court has not been established, but a Canadian Cancer Society spokesman estimated the amount is in the billions of dollars, but less than tens of billions of dollars.

Ontario, British Columbia, Nova Scotia, and New Brunswick all said they will file legal documents indicating they will be suing JTI Macdonald Corp., to recover the lost tax dollars.

Officials with the four provinces said they were joining the legal fight, but the court monitor appointed to receive the actual documents from the provinces said it will wait 15 days before announcing who has joined the law suit.

The deadline to file claims was Monday.

Alberta said earlier this month it will not join the law suit.

"We are very much in support of additional provinces joining Quebec and the federal government to seek compensation for contraband from JTI Macdonald," said Rob Cunningham, a Canadian Cancer Society spokesman.

"We have very much encouraged the federal and provincial governments to pursue legal action against the tobacco industry because of the contraband in the early 1990s," he said.

Ottawa filed a suit in 2003 seeking $1.5 billion in lost revenues. The Quebec suit, filed in 2004 under the province's tax laws, seeks almost $1.4 billion.

Ottawa launched its law suit after the RCMP laid charges against JTI and related companies for smuggling tobacco products between 1991 and 1996.

It is alleged the tobacco companies supplied U.S. smugglers with untaxed Canadian blend cigarettes that were shipped back to Canada through the Akwesasne Reserve near Cornwall, Ont., for sale on the black market.

A statement issued Monday by the Nova Scotia government said it will seek $326 million in taxes given up when taxes were reduced to prevent smuggling in the early 1990s.

"We reduced taxes to try and curb smuggling in 1994 and gave up hundreds of millions of dollars of revenue as a result," said Finance Minister Peter Christie in a statement.

Officials for the Ontario, British Columbia and New Brunswick would only confirm they intend to participate in the legal action. They did not provide further information about what damages they will be seeking.

JTI Macdonald Corp., could not be reached for comment.

The company is the third largest manufacturer of tobacco products in Canada, with approximately twelve per cent of the domestic cigarette market. Its major trademarks are Export 'A' and Vantage.

The Non-Smokers' Rights Association said it had been lobbying Ontario Premier Dalton McGuinty to join the law suit.

"We've been pushing the provinces, and in particular the province of Ontario, to move for quite some time," said Garfield Mahood, non-smokers' rights association spokesman. "It's taken two years to get them there."

The non-smokers' rights association was part of a coalition of anti-smoking groups that sent a letter to McGuinty earlier this month that outlined the health damages related to tobacco smuggling during the 1990s.

"A Health Canada mortality impact assessment obtained under federal Access to Information Act predicted that 45,000 future tobacco deaths would occur just from the increase in adolescent smoking in five years following the tax rollback, from 1994 to 1999," said the June 3 letter.

The notice of claim filed by Nova Scotia said JTI Macdonald profited from illegal activities by "engaging in smuggling, deceit, fraudulent misrepresentation, and civil conspiracy resulting in a tax liability owed to the province of Nova Scotia."

The majority of the Nova Scotia claim is for forgone revenues from 1994 to 2001, a period when tobacco taxes were kept lower to curb smuggling. The remainder includes taxes that should have been paid on cigarettes and other tobacco products sold illegally between 1989 and 1995.


Tobacco giant hit with huge tax bills:; [Final Edition]
WILLIAM MARSDEN. The Gazette. Montreal, Que.: Jul 21, 2005. pg. A.10
 

Total $9.5 billion. Feds, provinces say JTI-Macdonald aided smugglers in 1990s

Federal and provincial governments have served tobacco giant JTI- Macdonald Corp. with a $9.5-billion tax bill, claiming the company defrauded them of revenue by taking part in a huge smuggling conspiracy in the early '90s.

The tax claim comes as another blow to an embattled industry teetering under the weight of RCMP fraud investigations, criminal charges and two huge class-action lawsuits in Quebec, where smokers are claiming billions of dollars in compensation for smoking- related ailments.

The huge tax claims will likely shock the entire tobacco industry, already under a cloud over rampant smuggling in the early 1990s. Last year, the RCMP raided the head office of Imperial Tobacco, Canada's largest tobacco company, seeking evidence of a smuggling conspiracy similar to that for which JTI-Macdonald is charged. No charges have been laid against Imperial.

JTI-Macdonald has been hit hard by both tax claims and criminal charges. The Mounties charged the company and eight executives in 2003 with fraud and conspiracy to supply smugglers, in order to dodge Canadian taxes. Preliminary hearings, begun this year in Ontario, are expected to end in October.

The company also faces a $1.5-billion civil suit from the federal government, again alleging fraud. In addition, Quebec last year filed a $1.3-billion tax claim against the company.

Ottawa and seven provinces made their tax claims this week in Ontario Superior Court, where JTI-Macdonald last year was granted bankruptcy protection under the Companies' Creditors Arrangement Act (CCAA).

This has allowed the company to stop all asset seizures by creditors, including government tax departments, pending further hearings.

In addition to $9.5 billion in taxes, the federal and provincial governments are seeking penalties, interest and, in some cases, punitive damages.

Ontario is seeking revenues foregone as a result of reducing taxes to deter smuggling. Federal and provincial taxes tumbled during the peak smuggling period between 1990 and 1994.

In addition to Quebec's $1.3-billion claim, the federal government is seeking $4.3 billion (increasing its claim from $1.5 billion); New Brunswick $1.5 billion; Nova Scotia $326 million; British Columbia $450 million; Manitoba $23 million; Ontario $1.5 billion; and Prince Edward Island $75 million.

John Wildgust, director of corporate affairs at JTI-Macdonald, said the amounts are "wildly more than anybody could imagine almost any business in Canada could be worth."

He added, "We are confident that the justice system is going to find that we have no liability."

At the time of the alleged smuggling conspiracy, JTI-Macdonald was owned by the U.S. company RJ Reynolds Tobacco Inc. In 1999, it sold its international tobacco operations, including Macdonald Tobacco, to Japan Tobacco International (JTI). Tax liability prior to the sale still remains with RJ Reynolds, which is owned by British American Tobacco (BAT). BAT, the world's largest tobacco company, owns Imperial Tobacco.

Garth Mahood, director of the group Non-Smokers Rights, said he believes the government is trying to squeeze JTI-Macdonald into settling the case.

"Our best estimate is that JTI might be producing $200 million a year in profits. So my guess is they couldn't even pay the interest on $9 billion. ... What we are concerned about with government is that in the process of settling, they negotiate major concessions from the company that benefit public health."

 


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