Silver Wheaton Hit With $200 Million Tax Bill

By Paul Ausick Updated Apr 28, 4:55AM EDT · Published Jul 7, 7:40AM EDT

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Silver

The silver miner without any mines, Vancouver, Canada-based Silver Wheaton Corp. (NYSE: SLW) announced early Tuesday morning that the Canada Revenue Agency (CRA) has informed the company that the Canadian equivalent of the IRS plans to “reassess Silver Wheaton under various rules” in the country’s tax law. Silver Wheaton does not operate any mines but participates in production by investing a fixed amount of cash in exchange for a guaranteed stream of production.

According to the company’s press release, the CRA contends that the tax law’s transfer pricing provisions as related to Silver Wheaton income earned by its foreign subsidiaries should have been higher. For the years 2005 through 2010, the agency believes the company’s income should be $567 million higher.

The company’s management, of course, disagrees and says it intends “to vigorously defend its tax filing positions.” The company’s CEO said:

We remain confident in our business structure which we believe is consistent with that typically used by Canadian companies, including Canadian streaming companies, that have international operations. Generally a company is taxable in Canada on its income earned in Canada, while non-Canadian income earned by foreign subsidiaries is not subject to Canadian income tax. … [T]he CRA is seeking to tax, within Canada, streaming income earned outside of Canada by our foreign subsidiaries related to mines located outside of Canada.

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If the CRA does assess additional taxes on Silver Wheaton, the company believes it will have to pay about $150 million in taxes and another $57 million in penalties. The CRA’s letter did not indicate if or how much interest would be charged, but subsequent tax years remain vulnerable to audit. The company has 90 days to object to the CRA’s proposal and must pay 50% of the assessed taxes, interest and penalties. If the company prevails in its objection, the money will be returned.

When the company posted first-quarter 2015 earnings in May, it reported record silver equivalent production of 10 million ounces and silver equivalent sales of 7.7 million ounces. The average realized price per silver equivalent ounce fell 17% year over year, from $20.38 in the first quarter of 2014 to $16.90. Silver closed at around $15.70 on Monday.

Since 2005, the company’s stock price has risen by nearly 400%, as of its closing on Monday. Between 2005 and 2010, however, the share price rose nearly 800% before peaking at a gain of more than 1,100% in March of 2011. Shares closed at $17.54 on Monday and were inactive in Tuesday’s premarket. The stock’s 52-week range is $16.57 to $27.66.

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About the Author Paul Ausick →

Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.