On September 7 the Tax Court of Canada issued a ruling in the Glenhuron Bank case that finds Loblaw Companies Ltd. did not take any steps to avoid Canadian tax.
As we reported here, the Canada Revenue Agency had claimed that Loblaw established Glenhuron in Barbados for the purpose of tax evasion.
"We are pleased with the court's finding that Loblaw did not take any steps to avoid Canadian tax," said Loblaw Companies president Sarah Davis in response to the Tax Court decision. "This confirms what we have said all along: Glenhuron was established for legitimate business purposes. We are also pleased that the court's decision will result in a reduction of the amount of taxes assessed. We are, however, disappointed with the court's interpretation of a technical provision in the legislation. We strongly disagree and will appeal."
Loblaw estimates that if it is unsuccessful in its appeal of the decision, it would be required to pay tax and interest of approximately $368 million. After deducting amounts already paid, the incremental cash payment would be approximately $242 million. Loblaw expects that it would be able to fund the required payment from cash on hand and without any impact on its capital investment plans, dividend growth or its share buyback program.
Although Loblaw believes in the merits of its position, it will record a charge of approximately $368 million ($0.98 per share) in the third quarter of 2018.