Tax problems have caused a $1-million headache for North Atlantic Refining’s former owner.
According to a federal court decision dated April 11, the trouble for Geneva-based Vitol Refining arose nearly five years ago when it neglected to charge the 14 per cent harmonized sales tax on petroleum feedstock sold to North Atlantic from October 2006 to April 2007.
Vitol charged the GST — at the time six per cent. North Atlantic refined the feedstock into fuel and sold it to customers, charging the applicable HST.
Over the eight months, the difference between what Vitol should have charged North Atlantic and what North Atlantic was actually charged amounted to more than $100 million — the provincial portion of the tax payable to the Canada Revenue Agency (CRA).
Through its accounting firm, Ernst and Young, Vitol discovered its own error and disclosed it to Canada Revenue.
The ensuing months are a tangle of miscommunication — unanswered letters sent to Ernst and Young by Canada Revenue, including one returned after several months because it was addressed to an employee no longer with the accounting firm.
Court documents also state that several tax assessments sent by Canada’s tax collection agency confused tax terms applicable to Vitol’s case: “wash interest” refers to interest accrued between the date taxes should have been paid and the date of a notice of assessment, while “arrears interest” refers to interest accrued between when the notice of assessment is issued and the date the tax is actually paid.
Eventually, on July 10, 2008, North Atlantic paid Canada Revenue the $101,336,891.22 — which includes interest owing — on behalf of Vitol, that it should have been charged by Vitol in the first place, out of the net tax refund from Canada Revenue to North Atlantic.
Several more months followed of Vitol requesting that the interest charges be reversed. Canada Revenue waived the wash interest charges in December 2009 — the court document doesn’t reveal the amount — but held firm on the arrears interest, a little more than
$1 million. Last fall, Vitol sued the federal government.
In a federal court hearing in front of Justice Roger Hughes in Toronto on April 6, Vitol argued that Canada Revenue didn’t give sufficient consideration to the unique factors of the case, including the large amount of tax paid, its voluntary disclosure of the taxes paid, and the tax agency’s miscommunication with Ernst and Young, which Vitol said wasn’t its fault.
Lawyers for Canada Revenue argued that despite the voluntary disclosure, the large tax sum of more than $100 million went unpaid for nearly two months, and that the tax agency had already waived any penalties as well as the wash interest.
On April 11, Hughes released his decision, siding with Canada Revenue.
“There is nothing in this case to suggest that the CRA overlooked or misunderstood any important consideration,” the judge wrote — and in a final hit to the company’s bank account, ordered Vitol to pay the federal government’s court costs of $1,750.
Representatives with Vitol, North Atlantic and the Canada Revenue Agency all declined to comment on the case.