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Wheaton Precious Metals’ (TSE: WPM) shares surged over 14% Friday, following the company’s announcement that it had a reached settlement with the Canada Revenue Agency (CRA). The settlement provides for a final resolution of Wheaton’s tax appeal in connection with the reassessment under transfer pricing rules for 2005 to 2010.
Wheaton Precious Metals is one of the largest precious metals streaming companies in the world, and has streaming agreements for 19 operating mines and nine development stage projects.
The reassessments were related to income generated by Wheaton’s wholly-owned foreign subsidiaries operating outside of Canada.
“This settlement removes uncertainty with the use of our business model going forward and puts the tax issue behind us” — CEO
Wheaton’s press release states the settlement highlights that foreign income on earnings generated by Wheaton International will not be subject to tax in Canada. (The application of the settlement to years after 2010, including the 2011 to 2015 taxation years which are currently under audit, is limited to transfer pricing and will be subject to there being no material change in facts or change in law or jurisprudence.)
The service fee charged by Wheaton for the services provided to Wheaton International will be adjusted to include capital-raising costs associated with Wheaton for the purpose of funding streaming transactions entered into by Wheaton International and increase the mark-up applied to Wheaton’s cost of providing services to Wheaton International, including the above capital-raising costs, from the current 20% to 30%, according to the statement.
The additional service fee will result in increased income generated by Wheaton in Canada that is subject to Canadian tax. Transfer pricing penalties in the reassessments will be reversed. Interest will be adjusted consequentially to the adjustments described above, subject to some minor adjustments.
After the application of non-capital losses, Wheaton stated it does not anticipate any additional cash taxes will arise in respect of the 2005 to 2010 taxation years as a result of the settlement.
“The terms of the settlement are an excellent outcome for Wheaton and its shareholders,” said Randy Smallwood, Wheaton’s President and CEO. “This settlement removes uncertainty with the use of our business model going forward and puts the tax issue behind us.”
