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."
|
