The provincial government, which expects a $1.6 billion deficit next year, charges JTI-Macdonald profited from the contraband trade in cigarettes and did not pay taxes on those profits from 1990 through 1998, especially in the period through 1994.
The Toronto Star
August 25, 2004
Cigarette maker asks court for protection
Claims it faces bankruptcy. Seeks to head off Quebec tax bill.
Gary Norris
Cigarette maker JTI-Macdonald has sought bankruptcy-court protection against the Quebec government's demand for almost $1.4 billion in back taxes on allegedly smuggled cigarettes.
The Canadian unit of Japan Tobacco Inc., which makes Export A and international brands including Camel and Winston, said yesterday its filing under the federal Companies' Creditors Arrangement Act, or CCAA, allows it to continue business as usual.
It said the action was necessary after the Quebec Ministry of Revenue served an order Aug. 11 demanding immediate payment of $1.36 billion: $440.5 million in taxes, $283.6 million in penalties and $640.3 million in interest, which continues to grow.
"This order was accompanied by cash seizures from its customers, resulting in an immediate deprivation to JTI-MC of about 40 per cent of its Canada-wide revenues," the company stated. "In the absence of CCAA protection, the effect of these seizures would have unavoidably led to the bankruptcy of JTI-Macdonald."
The act provides for initial protection from legal proceedings for up to 30 days, which can be extended at the discretion of a bankruptcy judge.
The Quebec Superior Court order requiring immediate payment was hailed at the time by Revenue Minister Lawrence Bergman as a victory for taxpayers, and he stressed yesterday that the province will use all legal means to get the money.
"I take the Aug. 11 judgment at its word and I'm awaiting the payment," Bergman said.
"The law applies to everyone and everyone must respect the law. We're going to use all means possible."
The provincial government, which expects a $1.6 billion deficit next year, charges JTI-Macdonald profited from the contraband trade in cigarettes and did not pay taxes on those profits from 1990 through 1998, especially in the period through 1994. "In complete disregard of the presumption of innocence, Revenue Quebec had in effect declared JTI-Macdonald Corp. guilty of smuggling — without any court hearing — even while the same government is a party to a criminal proceeding that has not yet commenced," JTI-Macdonald said yesterday.
A preliminary hearing on the charges — in which the federal government makes similar allegations — is scheduled for next April in an Ontario court. Quebec is a party to that prosecution, and the federal government has also filed a $1.5 million tax claim in Ontario.
The company said it filed for court protection to protect its assets and 500 Canadian jobs.
"As well, operating under the CCAA will allow the company to continue to defend itself vigorously against the serious accusations in relation to smuggling activities that are alleged to have taken place in the early '90s," stated Michel Poirier, president and chief executive officer.
JTI said it had considered a Quebec court appeal against the assessment.
"However, it became progressively clear that the only effective remedy to protect JTI-MC from the arbitrary actions of the minister was CCAA protection," the Toronto-headquartered unit stated.
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Risks: Big Tobacco, Companies' Creditors Arrangement Act, CCAA, No real penalties for abuse of federal insolvency laws, Insolvency, Conspiracy, Fraud, Smuggling, Canada, 20040825 Cigarette maker
