CRA on warpathLike many shareholders, I'm sure, I've thought a lot about this CRA thing with GRZ. At one point I'm sure I was grumbling about the move to Bermuda being a horrible mistake and Rivett not looking too bright.
Currently, I'm feeling more comfortable with GRZ's position and, looking at it pragmatically, I think it will ultimately turn out that the move to Bermuda was the correct thing to do.
I get why the CRA is angry with GRZ. They see GRZ and the CRA together patiently waiting for a big payday and now GRZ runs away to Bermuda to leave the Canada tax collector out in the cold (though there is an exit tax).
The CRA won't be able to tax GRZ for 2025 because GRZ is no longer a Canadian corporation and it has no operations in Canada. (I don't think it ever had any operations in Canada, though I'm not sure.)
So the CRA is trying to make up for this by planning to do punative reassessments of earlier tax years. Essentially, when you (GRZ) won your US$770 million ICSID decision in 2014 you, at that moment, had to pay tax on that "income" whether you actually received the money or not. Not our problem that Venezuela didn't pay you.
Similarly, when you obtained a 45% interest in Siembra Minera (2017? 2018?) you owed us tax on that value. A third of $6 billion or something like that?
Add in penalties + CRA interest and GRZ might easily "owe" (according to the CRA) something like $4 billion.
GRZ would like to settle this but shareholders need to think where this will go if the CRA sticks to its current hard line right to the end.
GRZ has to respond to the CRA Proposal Letter by end of January. If the CRA then issues Notices of Reassassment around, say, mid-February, that would start the 90-day clock ticking. At the end of that, GRZ would have to put up half of the (say) $4 billion in order to appeal to the Tax Court of Canada. Of course, this would not be possible.
So what would then happen? Assume GRZ's cash will be parked in a Bermuda bank.
I'm pretty sure either:
(1) The CRA would apply to the Bermuda court to hand over GRZ's cash;
or
(2) GRZ--if seeing itself faced with no other option--would apply to the Bermuda court to rule on the validity of the CRA's claim. Essentially, GRZ would be seeking court protection from one very particular creditor.
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So here's why I think GRZ would win. 100%.
To understand this issue, you need to consider the historical background of the international arbitration (IA) system.
Before there was an IA system, foreign company investor disputes were often dealt with militarily. In 1902-03, for example, the UK, Germany, and Italy imposed a naval blockade of Venezuela (and basically destroyed the Venezuelan navy) over debts that the Venezuelan leader would not repay.
The IA system was set up with the idea that it would replace this kind of "gunboat" investor dispute resolution.
This is why smaller (responsible) countries tend to be the biggest supporters of the modern IA system. The Netherlands, for example.
And, hey, Canada.
If some US company has a dispute with the Canadian government, we DO NOT want President Trump attempting to resolve it by sending in the Marines--to Ottawa, Toronto, or whereever.
Similar situation with little Bermuda.
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What the CRA is trying to do to GRZ, if they can get away with it, would be a disaster for the entire IA system. No company would ever launch an IA action because the "other" country could beat it by just continuing to NOT pay while the company is slowly buried alive by accumulating taxes from their own country.
This is what Canada wants? And Bermuda?
I don't think so.
As this becomes better understood, the essential decision-makers will realize that what the CRA is trying to pull off CANNOT be allowed to succeed.
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GRZ's "crime" was that it followed rules that the CRA happens not to like. GRZ did not make the rules.
One can argue that the fiduciary duty of the GRZ board REQUIRED them to do the move to Bermuda because it would (should) be good for GRZ shareholders.
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Canada's solution to this situation (that it doesn't like) is to talk to other countries within our rules-based world order and see if the system can be improved. Maybe an expanded exit tax that covers 3-4 years after the company has departed?
Don't know. But the solution is not to impose rules (or make up rules) in ways that are an afront to common sense and that would hopelessly undermine the entire International Arbitration system.