Loblaws to appeal court ruling that calls for payment of $368M in back taxes

Loblaw Cos. Ltd. says it will appeal a tax court decision that leaves the grocery chain on the hook for a $368 million charge connected to one of its banking subsidiaries in Barbados.

On Friday, the Tax Court of Canada ruled on a case that was started in 2015 but traces its roots to 1992, when the grocery chain incorporated an offshore company in Barbados that later obtained a banking licence and became known as Glenhuron Bank Ltd.

Normally Canadian-owned foreign banks are safe from most income taxes in Canada under a well known exemption, but tax officials argued Glenhuron did not meet the requirements to be considered a foreign bank under Canadian law and therefore exempt from paying tax back home. Loblaws disagreed.

Loblaw says the court found the retailer did not take steps to avoid Canadian tax and reduced the amount of taxes assessed against the company down from what was initially sought. But the court's interpretation of a technical provision in the legislation means the grocery chain must nonetheless pay $368 million in taxes and penalties.

"We are pleased with the court's finding that Loblaw did not take any steps to avoid Canadian tax," Loblaws president Sarah Davis said. "We are, however, disappointed with the court's interpretation of a technical provision in the legislation. We strongly disagree and will appeal."

Regardless of the outcome of any appeal, Loblaws says it will take an accounting charge of 98 cents a share in its current third quarter financial results to cover the costs.

Because the chain has already paid some of the taxes, the actual cash cost will be $242 million, which it will be able to pay with cash on hand, without having to issue any new debt or alter its dividend policy.