Tobacco firm negotiates tax deal

Revenue Canada is seeking $20 million in unpaid taxes from a Quebec tobacco distributor, but is not demanding any interest or penalties on the shortfall. The government is also negotiating with the company to make a deal on the huge tax assessment in an attempt to keep the company operating, according to documents filed in a Laval court by a bankruptcy trustee and company lawyers.

Stephen Harper is shown pledging to end sales of tobacco products aimed at minors in 2008, the same year Quebec banned them. Ottawa's ban came into effect in 2010.

Stephen Harper is shown pledging to end sales of tobacco products aimed at minors in 2008, the same year Quebec banned them. Ottawa\’s ban came into effect in 2010.

Distribution GVA Inc. and its satellite company Distribution GVA (Canada) Inc., which are owned by Laval businessman Vincent Albanese, last year filed for protection under federal bankruptcy laws because of the $20-million tax assessment.

GVA has operated as distributors of tobacco products since 1997. They sell primarily cigars and cigarillos directly to retailers across Canada.

During the three years for which the government is seeking $20 million in unpaid excise taxes, one of their main products was cheap flavoured cigarettes aimed at the youth market.

According to court documents filed by bankruptcy trustee Jean Gagnon, the huge tax shortfall was the result of “an error by the company’s customs agent while calculating the excise tax since 2006.”

There is no sign in the file that a tax settlement has been reached and Revenue Canada refused to discuss the case, while the trustee in bankruptcy did not return phone calls. A court date for GVA’s proposal to creditors has been set in Laval for March 3.

All Canadian provinces, except Manitoba, have tax claims against the company. Quebec’s is the highest at $1.02 million.

The court records show that GVA and GVA Canada had assets totalling about $29 million as of Aug. 31, 2010. From Nov. 1, 2010, to Jan. 9, 2011, GVA had cash influx of $5.6 million and disbursements of $3.8 million.

Health Canada documents obtained by The Gazette allege that during the same period during which unpaid taxes are being claimed, GVA also was not complying with Tobacco Trading Regulations.

The documents allege that between Jan. 1, 2005, to Oct. 31, 2007, GVA failed to file 14 different reports including ones on ingredients, packaging, retail display and manufacturing procedures.

A Health Canada memo dated Feb. 21, 2008, claims that Health Canada simply sent them reminders until 2008 when it finally decided to take action. During one meeting with company officials, the memo claims, one GVA official simply refused to fill out the reports. The memo said: “We already gave GVA several chances in the past few years and they never showed us good faith in wanting to comply.”

Anti-smoking groups claim that the government has treated GVA too lightly and are demanding that Revenue Canada force the company to shut its doors.

They said GVA has intentionally targeted young people with their products.

Wrapped in colourful fluorescent packaging of blazing pinks, cherry reds and honey yellows that made the cigarillos look a lot like candy, GVA sold under labels such as Honey T, Twinkle, Al Capone and Bravo. Twinkles came in flavours of cherry, vanilla and peach as well as a “full-flavoured” Twinkle. Bravos could be bought in single cigarillos in a tube shaped and coloured like a magic marker. They were often sold in counter displays next to candy.

Before the federal Standing Committee on Health in 2009, GVA vice-president Luc Dumulong testified: “Distribution GVA has never, ever promoted any of its flavoured tobacco products to minors … The consumers of our products are adults, and we are opposed to the fact that minors are able to obtain access thereto.”

Canadian sales of flavoured cigarillos shot up to 467 million in 2009, from 276 million in 2006, according to Health Canada. Sales in Quebec more than doubled to 129 million from 57 million. In 2005-06, federal and provincial governments collected $7.1 billion in taxes from the big three tobacco companies alone. This dropped to $6.8 billion in 2009-10, of which Quebec’s share was $663 million.

A study called The Cost of Substance Abuse In Canada in 2002 claimed health costs of smoking are more than twice what governments collect in tax revenues.

Flory Doucas, spokesperson for the Quebec Coalition Against Tobacco, said that flavoured cigarillos were more popular than cigarettes for Quebec high school students.

“This was a huge public health crisis,” she said.

Quebec outlawed flavoured cigarillos in 2008 and also outlawed counter displays of tobacco products. Some tobacco companies sidestep the law by flavouring small cigars, which are defined as having no more than 1.4 grams of tobacco.

“It’s quite bizarre for Revenue Canada to actually consider that they (GVA) bear no responsibility for this tax error,” Doucas said. “Let GVA pay the taxes and the penalties and let them go after who made the mistake. That’s how it’s usually done. That’s what would happen to you and me.”

Cynthia Callard, of Physicians for a Smoke-Free Canada, said the government has a long history of being lenient with tobacco companies on tax issues. “I don’t understand what the public purpose would be of (the government) engaging in anything that would keep (GVA) going or get them off the hook,” she said.

source: www.montrealgazette.com

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