The company can contest the judgment but has to pay first, Mr. Matte said. If it wins its appeal, then it would be reimbursed…"In theory, they can seize everything," Mr. Matte said.
The Globe and Mail
August 8, 2004
Pay Quebec $1.4-billion, tobacco firm told
Court acts on claim JTI-Macdonald owes province back taxes, penalties from 1990s cigarette smuggling
Tu Thanh Ha
Montreal — The Quebec government has obtained a court judgment ordering tobacco giant JTI-Macdonald Corp. to pay nearly $1.4-billion immediately, the largest assessment for unpaid taxes in the province's history.
JTI owes money because huge numbers of cigarettes bound for the United States were smuggled back into the country and sold illegally tax-free in the 1990s, Quebec Revenue Minister Lawrence Bergman said in an interview.
"Judgment has been obtained in our favour and we await payment," Mr. Bergman said.
Under Section 13 of the Quebec Department of Revenue Act, the minister issued a certificate attesting that the company owed tax money. The certificate was filed Wednesday in Quebec Superior Court and a clerk issued a short judgment in favour of the department right away.
Resorting to Section 13 is uncommon but not groundbreaking. The amount claimed against JTI, however, was exceptional.
The government says the company owes $1,364,430,357.51 in unpaid taxes, penalties and interest, the largest assessment ever for a company in Quebec.
Yesterday, JTI said in a statement that the government's action "is extraordinary and all the more disturbing as it ignores the presumption of innocence."
It added, "JTI-Macdonald Corp. is studying this unprecedented Quebec situation carefully and will take all necessary and appropriate measures to defend its lawful business."
In fiscal law, taxes claimed by the government have to be paid immediately, said Montreal attorney Guy Matte, a tax expert. "It's considered public money, not yours."
The company can contest the judgment but has to pay first, Mr. Matte said. If it wins its appeal, then it would be reimbursed.
One option contemplated by the government is seizing revenues from JTI's retailers, an unprecedented step against a tobacco firm, one source said. The government has a range of other powers to enforce collection, including seizing or mortgaging company property.
"All of this is possible. We will exercise all our rights. Many recourses exist in our favour as a result of the judgment," Mr. Bergman said. "It's up to the taxpayer to sit down with Revenue Quebec. But the money is exigible now. ….. We're expecting immediate payment."
The government acted against JTI in fairness for "the 96 per cent of taxpayers who pay their taxes to the dollar and on time," he said.
"In theory, they can seize everything," Mr. Matte said.
Invoking Section 13 secures the government's claim on the taxes owed. But bureaucrats need to apply in a way that won't destroy the company or open the door to lawsuits, Mr. Matte said.
Mr. Bergman's certificate covers the period from Jan. 1, 1990, to Dec. 31, 1998.
During the '90s, high taxes on tobacco prompted an extensive black market where Canadian cigarettes exported to the U.S. were secretly imported back and sold tax-free.
Some of JTI's executives were involved in the scheme, a Revenue Quebec auditor said last year in a court affidavit.
Garfield Mahood, executive director of the Non-Smokers Rights Association, hailed Quebec's action and urged other governments to take similar steps.
"It's worth a lot of money, and this is money that belongs to the citizens of Quebec. This government is showing leadership."
Other provinces have similar dispositions in their tax laws, Mr. Matte said. In Ontario, the Tobacco Tax Act gives the finance minister the power to issue a warrant that has the same force as a writ of execution against someone who owes back taxes.
Quebec's move follows in the footsteps of the federal government, which last year sued major tobacco companies, including JTI-Macdonald and R..J. Reynolds, for $1.5-billion, alleging they evaded taxes while profiting from smuggling. A similar, $1-billion lawsuit the federal government filed in the U.S. was tossed out in 2000, but on a technicality: A New York court said it had no jurisdiction over a Canadian tax dispute.
Also, eight JTI-Macdonald executives were charged last year with fraud and conspiracy after a four-year RCMP investigation into cigarette smuggling.
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