Court rejects appeal on glyophosate sale tax issue

An ongoing tax dispute involving Saskatchewan farm input supplier AgraCity Ltd. is inching its way toward a resolution.

Late last year, the Federal Court of Appeal dismissed an appeal launched by AgraCity and upheld an earlier order requiring the Saskatoon company to submit documents relating to the sale of ClearOut, a generic glyphosate product.

Based on an assessment of tax filings, the Canadian Revenue Agency claims that AgraCity underreported the amount of income derived from sales of ClearOut by more than $6 million in 2007 and 2008.

AgraCity appealed Ottawa’s claim and the case has been working through a maze of procedural delays during the past few years.

The dispute is still at the pleadings stage before the Tax Court of Canada.

However, a Federal Court of Appeal ruling issued Dec. 16, 2015, has removed one delay.

Officials with the Tax Court of Canada said the two parties will now continue with disclosure and discovery work, in advance of either a Tax Court of Canada hearing or a monetary settlement.

A hearing date has not yet been scheduled.

The case between AgraCity and the crown stems from the sale of a generic glyphosate product, ClearOut, which is produced in the United States.

AgraCity, based in Saskatoon, is affiliated with Farmers of North America, a for-profit company that sells memberships to farmers and in return offers price discounts on common farm inputs.

The products offered to FNA members include generic or off-patent farm chemicals.

AgraCity is involved in the procurement, production, packaging, sale and distribution of fertilizers, herbicides, pesticides, inoculants and petroleum products.

The products that it handles are available to FNA’s farmer members.

According to court documents, AgraCity is wholly owned by Jason Mann, who is also president and chief executive officer of Farmers of North America.

ClearOut was the first herbicide to be offered to FNA members beginning in 2005.

In 2007 and 2008, AgraCity supplied ClearOut to Canadian farmers via an offshore company called New Agco-Barbados.

According to court documents, New Agco-Barbados is incorporated under the laws of Barbados and is a subsidiary of a numbered Sask-atchewan company, 101072498 Ltd., also known as SaskCo.

Federal Court of Appeal documents state that SaskCo is indirectly owned by Mann and his brother, James Mann.

The Federal Court of Appeal ruling states that New Agco-Barbados reported significant profits from the sale of ClearOut in 2007 and 2008.

It also says the Barbados company paid AgraCity a fee for services related to the sale and distribution of ClearOut to FNA members in Canada.

Lawyers for the crown contend that New Agco-Barbados did not sell ClearOut and therefore should not have been entitled to retain any share of the profits derived from the sale of the chemical.

In its decision dated Dec. 16, 2015, the Federal Court of Appeal stated that “the actual facts of the case are not clear and are in dispute.”

Nonetheless, it dismissed AgraCity’s appeal, which disputed whether the company should be required to provide certain documents in accordance with Tax Court of Canada rules.

“It appears that there is no dispute that farmers in Canada wanted to buy a particular herbicide, ClearOut, which was to be imported into Canada,” the appeal court’s ruling stated.“What is not clear is who was selling ClearOut.”

AgraCity spokesperson Jason Mann said in an interview that it was a pity the company has been forced to spend its time and energy fighting the case.

He said it could be years before the case is settled.

“We’re prepared to take it right through to trial … because we know we have no liability there,” he said.

Mann said AgraCity’s legal team has advised the company that it will be successful in challenging CRA’s position.

“The loss of the appeal was really just preliminary wrangling with the CRA to narrow the scope of what they were alleging because (we felt) they were taking polar opposite approaches on two of their claims,” he said.

“Our lawyer, which is KPMG Law, advise us that we will be successful in this matter, so (there’s) a long ways to go. We’re probably four or five years out before there’s any decision on it.”

Mann called the case a precedent-setting matter that could have implications for other industries that use off-shore companies in low-tax jurisdictions to complement Canadian business operations.

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