[Intl-tobacco] Pay Quebec $1.4-billion, JTI told (plus company response)

[robert weissman]

Pay Quebec $1.4-billion, tobacco firm told

By TU THANH HA
 From Saturday's Globe and Mail

UPDATED AT 10:15 AM EDT =09Saturday, Aug 14, 2004

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Montreal =97 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.



--------


JTI-Macdonald Corp. Response to Revenue Quebec Statement

     TORONTO, Aug. 13 /CNW/ - JTI-Macdonald Corp. is assessing the potentia=
l
implications of a notice of assessment issued by the Quebec Ministry of
Revenue claiming payment of $1.4 billion.
     The action by the Quebec Ministry of Revenue is extraordinary and
all the
more disturbing as it ignores the presumption of innocence while a
vigorously
contested proceeding, to which Revenue Quebec is a party, is before the
Ontario Court of Justice. JTI-Macdonald Corp. will be presenting a full
defence in the Ontario case dealing with matters concerning allegations fro=
m
the 1990s.
     JTI-Macdonald Corp. is studying this unprecedented Quebec situation
carefully and will take all necessary and appropriate measures to defend it=
s
lawful business.
     JTI-Macdonald Corp. is not able to make any further comment at this
time.

     JTI-Macdonald Corp., a member of the JTI Group of Companies, was
founded
in 1858. JTI-Macdonald Corp. has administrative offices in Toronto,
manufacturing operations in Montreal and has over 500 full-time employees
across Canada. JTI-Macdonald Corp. is part of the JT Group, one of the
world's
largest manufacturers of tobacco products, with three of the world's top
five
brands in its product portfolio and sales activities in over 120 countries.