Loblaw delivers closing arguments in $437 million tax dispute with CRA

Loblaw’s lawyer Al Meghji said in his closing arguments at the Tax Court of Canada that Barbados-based Glenhuron Bank Ltd. was viewed as a bank under Barbadian law, and should qualify for the appropriate tax exemption under Canadian law. (Photo By Raysonho @ Open Grid Scheduler / Grid Engine – Own work, CC0)

TORONTO — The Canada Revenue Agency’s allegations that Loblaw Companies Ltd.’s Barbadian banking subsidiary was established and used for tax avoidance are “absurd,” the retail conglomerate’s lawyer told a Toronto court on Tuesday.

Loblaw’s lawyer Al Meghji said in his closing arguments at the Tax Court of Canada that Barbados-based Glenhuron Bank Ltd. was viewed as a bank under Barbadian law, and should qualify for the appropriate tax exemption under Canadian law.

“All of the evidence supports the finding that the incorporation and the getting of the bank license was driven by commercial considerations,” Meghji told Justice Campbell Miller. “There was no purpose of avoiding Canadian tax.”

The trial centred on the federal government’s reassessments of Loblaw’s subsidiary for several tax years dating as far back as 2001, and began after the company filed an appeal in 2015.

The reassessments, which were received between 2015 and 2018, are for the 2000 to 2013 taxation years and total $437 million of taxes, interest and penalties owed, according to Loblaw’s latest quarterly financial report.

Loblaws Inc. was incorporated as an international business corporation in Barbados in September 1992 and its activities included investing in short term securities and holding cross-currency swaps, according to court documents.

Loblaws Inc. changed its name to Glenhuron Bank Ltd. in November 1993 and in December 1993 it became a licensee under the Offshore Banking Act of Barbados.

Glenhuron was liquidated in 2013, when Loblaw decided to use that capital domestically to buy Shoppers Drug Mart.

Department of Justice lawyers had argued during the trial, which began in April, that Loblaw Financial took steps to make Glenhuron Bank appear to be a foreign bank in order to avoid paying tax.

Government lawyers had said that the Barbados-based entity did not qualify because, among other things, it mainly invested the grocery giants’ own funds and did not conduct business with arms-length entities.

Glenhuron meets the requirements of a bank on various fronts, Meghji told the court Tuesday.

The majority of Glenhuron’s activities, based on revenues, involved arms-length entities, such as swap contracts with large banks, he said.

Its banking licence from Barbadian authorities is further evidence that it fits the profile of a bank, he added.

The allegation that Loblaw established the Barbadian subsidiary as a means to “shoehorn” itself into the foreign banking exemption under Canadian law is “untenable, it’s absurd,” as Glenhuron’s establishment predated the rules, said Meghji.

“At the time, none of this applied to them… The rules weren’t around,” he said.

Glenhuron was established for viable commercial reasons, said Meghji.

However, Justice Miller on Tuesday told Meghji that he had examined the documentation and evidence over the course of the trial but was “still struggling to find the non-tax reason for setting this Barbadian company up.”

Barbados was chosen to be vehicle for the reinsurance and finance business “which were subsequently carried out, and wildly profitable,” Meghji replied.

“That company was created to do exactly what it did,” he told the court. “It wasn’t created to avoid Canadian tax.”

Department of Justice lawyers are due to deliver their closing arguments in court on Wednesday.