CRA Dispute - FAQ

October 12, 2018

CRA Dispute Overview

Tax Court decision

  • Tax Court of Canada decision received September 26, 2018

  • Clear and decisive ruling in favour of Cameco for the dispute related to reassessments issued for 2003, 2005 and 2006 tax years

  • Confirms that our marketing and trading structure was set up in accordance with the rules

  • Confirms that transactions between Cameco and its European subsidiary were commercially normal and the pricing under its purchase and sale arrangements were reflective of arm’s length arrangements

  • Decision does not automatically apply to subsequent years

  • We believe there is nothing in the decision that would warrant a different outcome on appeal or for the other tax years in question


Expected refund for 2003, 2005 and 2006 tax years

  • Total tax amount reassessed for 2003, 2005, 2006 was $11 million, 50% of which has been paid

  • Court has referred the matter back to Minister of National Revenue in order to reassess in accordance with ruling

  • Expect refund of about $5.5 million plus interest

  • Timing of refund uncertain

  • Decision does not automatically apply to subsequent years


Appeal process

  • Federal Court of Appeal – Crown has until October 26, 2018 to appeal. 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 under appeal, we may receive reassessments for tax years 2013 and beyond. We would be required to remit or secure 50% of the cash taxes and transfer pricing penalties plus any interest and instalment penalties reassessed.


Other years under consideration

  • Tax Court decision applies to 2003, 2005 and 2006 tax years – subject to appeal by Crown

  • CRA reassessed 2007 to 2012

  • May receive reassessments for tax years subsequent to 2012


Potential exposure if CRA appeals

  • Assuming CRA successfully appeals the decision for 2003, 2005, and 2006 tax years, and that it is successful in applying its methodology to all subsequent years, including those not yet reassessed, 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 in a single payment

  • If future reassessments are received, we would be required to remit or secure 50% of the cash taxes and transfer pricing penalties plus any interest and instalment penalties.

  • For amounts paid, secured or potentially owing see page 11 of our current Quarterly MD&A


Frequently Asked Questions

What was the Tax Court’s decision?

On September 26, 2018 the Tax Court of Canada ruled in favour of Cameco in its dispute of the reassessments issued by Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years. The decision confirmed that our marketing and trading structure was set up in accordance with the rules and that transactions between Cameco and its European subsidiary were commercially normal and the pricing under its purchase and sale arrangements were reflective of arm’s length arrangements.

What happens now?

This decision covers the 2003, 2005 and 2006 tax years and is not legally binding for subsequent years. We believe there is nothing in the decision that would warrant a different outcome on appeal or for the other tax years in question.

The Crown has the option to appeal to the Federal Court of Appeal by October 26, 2018. If appealed, Cameco estimates it would take about two years for the Federal Court of Appeal to hear and decide the matter.

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.

What was the CRA challenging?

The CRA was 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. This was confirmed by the Tax Court of Canada decision for the years before the court.

What is the potential exposure for Cameco if CRA appeals?

While we expect the Tax Court’s decision to be upheld on appeal and see no reason the decision should not apply to subsequent years, applying the methodology the CRA has used for the 2003 through 2012 tax years, over time, we estimate that 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