The quarrel brewing
“Collateral damage,” a military term that describes injury inflicted on people or property other than the intended target, may soon apply to Barbados.
That would happen if a heated and highly publicised corporate battle over taxes ends up forcing the United States (US) Internal Revenue Service (IRS) or the Canadian Revenue Agency to take action over the tax strategy of Valeant Pharmaceuticals International Inc., which acquired Biovail Corporation, which had a subsidiary in Barbados.
The tax quarrel is attracting considerable attention in the US and Canada because of reports suggesting Valeant might owe authorities in those countries taxes.
The row has erupted as many Canadians complain about their companies that use Barbados and many of its Caribbean neighbours to lower their tax bills to the Canadian Revenue Agency.
It is also being waged in an unprecedented atmosphere created by the US Foreign Account Tax Compliant Act which requires American citizens, US corporations and a host of others around the world including in Barbados, to report their offshore holdings to the IRS.
Reports in the Canadian media alleged that the issue became prominent there after Eugene Melnyk, the owner of the Ottawa Senators of the National Hockey League, several successful racehorses and Bert’s Bar in Barbados, took his case to the IRS.
Melnyk, who has made Barbados his home, is a member of a group who made a formal presentation to US regulatory tax authorities two years ago, stating that Valeant was really an American company and not a Canadian firm and therefore should pay higher taxes to Washington.
Casting himself as an “official whistle blower,” Melnyk was quoted by Canada’s Financial Post newspaper as saying that Valeant, which merged with Biovail four years ago, was calling itself a Canadian company so as to keep Biovail’s tax advantages in Canada.
According to the newspaper, Melnyk said Valeant’s main decision-making took place in New Jersey, US, where its chief executive officer and chairman J. Michael Pearson and its chief financial officer, Howard Schiller, along with 400 other staffers, were based and ran the company.
Half of the firm’s revenues last year were generated in the US, but Valeant is incorporated in British Columbia and its head office, which employs 180 people, is in the Montreal suburb of Laval.
Valeant executives disputed the statements.
“Mr. Melnyk is obviously entitled to an opinion. But the fact is that under the rules of both Canada and the United States, we’re a Canadian company, following all of the rules and regulations as they’re currently proposed, both in the spirit and in terms of the written rules,” the company said.
They also said Valeant books “revenue where inventory and products are sold through inter-company agreements and distribution networks and records profit where earned and where each party earned arms-length remuneration. Each entry is resident in their country of their incorporation and we’re compliant with all local laws as well as the laws of the relevant treaties between each party.”