TORONTO -- Loblaw Companies Ltd. and the Canada Revenue Agency faced off in a Toronto court Wednesday in a $404-million dispute involving allegations that the grocery giant's Barbadian banking subsidiary was misused for tax avoidance.
The Tax Court of Canada hearing focused on Barbados-based Glenhuron Bank Ltd. was largely procedural ahead of a trial due to start on April 23.
The dispute -- which began in 2015 after subsidiary Loblaw Financial Holdings filed an appeal -- could cost the grocery giant (TSX:L) as much as $404 million, including interest and penalties, according to its latest quarterly report.
The CRA alleges in court filings that Loblaw Financial Holdings took a series of steps to have Glenhuron "appear to be a foreign bank in Barbados in order to circumvent" the rules.
It notes that Glenhuron was not allowed to accept deposits from or provide international financial services to Barbados residents. The government added in court documents that the bank's income came from investing and managing loans and funds, as well as other financial activities, for the Loblaw group of companies.
"GBL's (Glenhuron's) activities did not constitute banking or a banking business... GBL was not in the business of providing financial services," the government said in a November filing.
The CRA's stance is that certain investment income earned by Glenhuron should be treated and taxed as income in Canada, and not as a foreign bank which can qualify for an exemption.
The federal government reassessed Loblaw's subsidiary for several tax years as far back as 2001, and concluded that it should pay taxes on $473 million of Glenhuron's income, court filings show.
Loblaw spokesman Kevin Groh says the conglomerate has "paid its taxes as it should in the jurisdictions it should," and Glenhuron's income earned outside of Canada should not be taxable.
"This case is largely about a difference of opinion regarding the interpretation of tax policy and law... Our position is that Glenhuron Bank's income was not taxable in Canada," he said in an emailed statement Wednesday.
"The CRA disagrees. And, the Court will have to decide this question."
