Silver Wheaton Says Canada Revenue Agency Widens Audit

  • Metals streaming company says agency now looking at 2011-2013
  • Company says agency could assert $310 million more in taxes

Silver Wheaton Corp.’s shares pared losses a day after reporting the Canada Revenue Agency plans to widen its look at the precious-metals streaming company’s international transactions.

The federal agency informed the company it intends to audit its books from 2011 to 2013, Silver Wheaton said Tuesday in a statement.

In July, the Vancouver-based company said the CRA planned to reassess its earnings from foreign subsidiaries booked for the taxation years 2005 to 2010. At the time, Silver Wheaton said this could result in an increase of C$715 million ($493 million) to its taxable income for those years, news that caused the biggest drop in the company’s stock in more than six years.

If the CRA adopts a similar view of the company’s 2011-2013 earnings, it could claim Silver Wheaton owes an additional $310 million in taxes payable in Canada, the company said in the statement.

That would bring the increase in the tax bill to $575 million, given that the increase in the 2005-10 bill could be an estimated $265 million, Andrew Kaip, an analyst at BMO Capital Markets, said by e-mail Wednesday. And the final number could be higher once penalties and interest are added, he said.

‘Question the Timing’

“Ironically, elevation of the CRA position could be viewed as positive -- investors now have a clearer picture of the CRA position for future tax years,” Kaip said in a research note late Tuesday.

Silver Wheaton was down 0.5 percent at C$15.23 at the close in Toronto, after dropping as much as 4.6 percent earlier. The shares have declined 11 percent this year amid a wider global equities and metals rout.

Silver Wheaton said taxation years subsequent to 2013 also remain open to audit by the CRA.

It noted that the latest notice from the CRA came less than two weeks after the company opted to fight the 2005-2010 reassessment in judicial court rather than through an internal appeal process with the CRA.

“We question the timing of the announcement as one that could be construed to exert pressure on Silver Wheaton,” Kaip said in the note.

Silver Wheaton Chief Executive Officer Randy Smallwood said the company plans to “vigorously defend” its business structure.

‘Downside Pressure’

“We believe that we have complied with Canadian tax law and feel that the court process, rather than the CRA appeals process, will provide the most expeditious avenue for the resolution of this matter,” Smallwood said in the statement.

Speaking later in the day at an investor conference in Whistler, B.C., Smallwood told investors that the CRA action hasn’t changed the company’s approach to business, and reiterated the company’s view that its assets outside Canada shouldn’t be taxed domestically.

The tax dispute is unlikely to be resolved before 2017, Phil Russo, an analyst at Raymond James Financial Inc. in Toronto, said Wednesday in a note. “We suspect the stock will come under further downside pressure on this news. Longer term investors who can tolerate the taxation dispute should consider current levels given the fundamentals, while overshadowed today, remain strong.”

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