Chrysler Canada Hit with C$500 Million Tax Lein

TORONTO (Reuters) – The Canadian government has hit Chrysler Canada with a tax-related C$500 million ($400 million) lien that could complicate negotiations for the automaker as it seeks government aid, the Globe and Mail newspaper said on Thursday.

The paper, citing federal court documents, said the Canada Revenue Agency notified Chrysler Canada in 2002 that it owed “substantial increases” in taxes for three years starting in 1996.

The notification was the result of a reassessment, one of three between 2002 and 2005, targeting the pricing of automobiles and parts that crossed the border between Chrysler Canada and its Detroit parent, the paper said.

It said the court documents do not reveal the amount of back taxes that Canada Revenue is seeking, but that documents filed with Ontario’s Land Registrar showed the tax agency filed a C$500 million lien in September against Chrysler’s operations in Brampton, Ontario.

The lien is believed to be one of the largest ever served against a company in Canada and typically such claims do not reflect the full amount of taxes owed, the paper said.

It said the timing of the tax dispute could complicate matters for Chrysler as it seeks government aid, and could trigger a tug-of-war over bailout money between the tax authorities in the two countries.

Chrysler Canada and General Motors Canada (GM.N) are due to present their restructuring plans to the governments of Canada and the province of Ontario on Friday as a requirement to qualify for emergency loans. The companies presented their viability plans to the U.S. government on Tuesday.

Ontario Economic Development Minister Michael Bryant said that Chrysler Canada has tried to make the tax dispute part of the bailout negotiations, because “they want to lower their liability overall as much as possible,” the Globe said.

It said Chrysler Canada argued in Federal Court last fall that Canada Revenue “unfairly deprived” it from seeking tax relief in the United States under the Canada-U.S. Tax Treaty due to the timing of the notification.

The treaty, designed to prevent double taxation, allows companies to to seek tax relief from the United States if Canada issues a tax reassessment over such issues as faulty transfer pricing.

Under terms of the treaty, tax authorities must be notified about the reassessment within six years of the year in which the disputed payments occurred, the Globe said. But Chrysler argued its last reassessment notice came in 2005, nine years after 1996, the first year in which transfer pricing was reassessed.

The court dispute has been shelved while the various governments negotiate a bailout for the auto sector, the paper said.

A Chrysler Canada spokeswoman was not immediately available for comment. ($1=$1.25 Canadian) (Reporting by John McCrank, editing by Dave Zimmerman)