CRA Dispute - FAQ

September 6, 2018

CRA Dispute Overview

Basis for dispute

  • Marketing and trading structure involving foreign subsidiaries
  • Transfer pricing methodology used for certain intercompany uranium sale and purchase agreements

Years under consideration

  • Tax court decision applies to 2003, 2005 and 2006 tax years
  • CRA reassessed 2003 to 2012
  • Expect audits for subsequent years

Timing of resolution

  • The trial for the 2003, 2005 and 2006 reassessments commenced in October 2016, finished September 2017
  • Expect Tax Court decision by end of March 2019

Exposure for 2003, 2005 and 2006 tax years

  • Total tax amount reassessed for 2003, 2005, 2006 was $11 million, 50% of which we have paid
  • Interest would be payable on any unpaid portion of the $11 million, or in the case of a refund receivable, on the portion already paid
  • Decision does not automatically apply to subsequent years

Required payments

  • Expect to provide security in form of letters of credit and/or make cash payments for 50% of cash taxes, interest and penalties as reassessed in the future
  • For amounts paid and secured see page 11 of our current Quarterly MD&A

Maximum exposure

  • Using the methodology we believe the CRA will continue to apply, and assuming they are successful following appeals, over time we would be required to pay cash taxes and transfer pricing penalties that could total between $1.95 billion and $2.15 billion, plus interest and instalment penalties, which would be material. These payments cover the tax years 2003 to 2017.
  • There is no scenario where the full amount would be due to the CRA on a single payment
  • At the time of future reassessments, we would be required to remit or secure 50% of the cash taxes and transfer pricing penalties (totaling between $970 million and $1.07 billion) plus any interest and instalment penalties.
  • For amounts paid and secured see page 11 of our current Quarterly MD&A

Dispute process

  • Tax Court Trial – complete for 2003, 2005 and 2006 tax years, decision pending
  • Federal Court of Appeal – either party can appeal within 30 days following Tax Court decision. Appeal could take up to 2 years.
  • Supreme Court of Canada – either party can appeal to the Supreme Court following Federal Court of Appeal decision. The Supreme Court decides if they will hear the case. This could take an additional 2 years.
  • While the dispute continues, we are required to continue to remit or secure 50% of the cash taxes and transfer pricing penalties plus any interest and instalment penalties as they are assessed.

Frequently Asked Questions

What is this dispute about?

The dispute started in 2008. Canada Revenue Agency has disputed Cameco’s marketing and trading structure and the related transfer pricing we used for certain intercompany uranium sale and purchase agreements.

For the years 2003 to 2012, CRA has issued notices of reassessment to Cameco. More details about the reassessments can be found on page 11 of our current Quarterly MD&A

The total tax amount reassessed for the 2003, 2005 and 2006 tax years was $11 million and we have remitted half of that amount. We have presented our case to the Tax Court of Canada for tax years 2003, 2005 and 2006 and are awaiting the Court’s decision. While the decision will not be legally binding for any of the other years under dispute, it will be an important factor in resolving the dispute.

What is the CRA challenging?

The CRA is generally testing two things:

  • the governance (structure) of the corporate entities involved in the transactions
  • the price at which goods and services are sold by one member of a corporate group to another

Cameco has a global customer base and we established a marketing and trading structure involving foreign subsidiaries, including Cameco Europe Limited (CEL), which entered into various intercompany arrangements, including purchase and sale agreements, as well as uranium purchase and sale agreements with third parties. Cameco and its subsidiaries made reasonable efforts to put arm’s-length transfer pricing arrangements in place. The intercompany contract prices are generally comparable to those established in comparable contracts between arm’s-length parties entered into at that time.

Has Cameco paid all of its taxes?

We have followed all of the rules and paid all taxes owed under the laws of Canada and other jurisdictions.

What is the status of your Canadian tax dispute?

For the years 2003 to 2012, CRA has issued notices of reassessment to Cameco. More details about the reassessments can be found on page 11 of our current Quarterly MD&A

The total tax amount reassessed for the 2003, 2005 and 2006 tax years was $11 million and we have remitted half of that amount. We have presented our case to the Tax Court of Canada for tax years 2003, 2005 and 2006 and are awaiting the Court’s decision.

What will happen to Cameco if you lose?

This decision covers the 2003, 2005 and 2006 tax years and is not legally binding for years subsequent. We would be required to pay up to an additional $5.5 million in taxes plus associated interest and penalties, on top of the $5.5 million we have already paid for those years. There is no scenario where the entire maximum exposure of $1.95 to 2.15 billion would be due on a single day and require a single payment to the CRA.

Both parties will have the option to appeal to the Federal Court of Appeal within 30 days of the decision.

What is the worst case scenario for Cameco?

We believe that our tax reporting complied with the requirements of Canadian law.

Using the methodology we believe the CRA will continue to apply, and assuming they are successful, over time we would be required to pay cash taxes and transfer pricing penalties of between $1.95 billion and $2.15 billion, plus interest and instalment penalties, which would be material. These payments cover the tax years 2003 to 2017.

There is no scenario where the entire maximum exposure of $1.95 to 2.15 billion would be due on a single day and require a single payment to the CRA.

Caution about forward-looking information relating to our CRA tax dispute

This discussion of our current expectations relating to our tax dispute with CRA and future tax reassessments by CRA is forward-looking information or forward-looking statements under Canadian and U.S. securities laws, that is based upon assumptions and subject to material risks. Actual outcomes may vary significantly, and we will not necessarily update this information unless we are required to by securities laws. We recommend you also review our most recent annual information form, annual MD&A and quarterly MD&A for a discussion of additional material assumptions and risks.

Assumptions

  • CRA will reassess us for the years 2013 through 2017 using a similar methodology as for the years 2003 through 2012, and the reassessments will be issued on the basis we expect
  • we will be able to apply elective deductions and utilize letters of credit to the extent anticipated
  • CRA will seek to impose transfer pricing penalties (in a manner consistent with penalties charged in the years 2007 through 2011) in addition to interest charges and instalment penalties
  • we will be substantially successful in our dispute with CRA and the cumulative tax provision of $61 million to date will be adequate to satisfy any tax liability resulting from the outcome of the dispute to date

Material risks that could cause actual results to differ materially

  • CRA reassesses us for years 2013 through 2017 using a different methodology than for years 2003 through 2012, or we are unable to utilize elective deductions or letters of credit to the extent anticipated, resulting in the required cash payments or security provided to CRA pending the outcome of the dispute being higher than expected
  • the time lag for the reassessments for each year is different than we currently expect
  • we are unsuccessful and the outcome of our dispute with CRA results in significantly higher cash taxes, interest charges and penalties than the amount of our cumulative tax provision of $61 million, which could have a material adverse effect on our liquidity, financial position, results of operations and cash flows
  • cash tax payable increases due to unanticipated adjustments by CRA not related to transfer pricing
  • we are unable to effectively eliminate all double taxation