Quebec tax agency accuses Kitco in gold sales tax scam

Section:

High-Profile Gold Trader Probed in Tax Scam Allegations

By Nicolas Van Praet
National Post, Toronto
Friday, June 10, 2011

http://business.financialpost.com/2011/06/10/high-profile-gold-trader-pr...

MONTREAL -- One of Canada's largest gold traders has become ensnared in allegations of tax fraud after Revenue Quebec swooped on a web of people and companies it claims may have bilked taxpayers of at least $150 million.

Kitco Metals Inc., a well-known buyer and reseller of precious metals including gold, is among those under investigation after the Quebec tax department alleged that it is part of an intricate scheme designed to avoid paying provincial sales taxes. The company denies the claims.

In what Revenue Quebec calls one of its biggest probes in recent years, more than 175 provincial investigators with search warrants this week raided several businesses, private residences and offices of accounting firms and bankruptcy trustees in the Montreal area. The revenue department alleges that some 125 companies in the gold refining and trading industry engaged in a tax fraud scam on sales transactions worth $1.8-billion. It claims the firms also avoided paying the federal goods and services tax.

No arrests have been announced.

... Dispatch continues below ...



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The tax agency named two companies as being the subject of investigations -- Kitco and Carmen International Inc. Revenue Quebec employees visited Kitco's Montreal offices on Tuesday to gather information, company spokesperson Sharlene Dozois said.

"I'm quite surprised by these allegations," said James Turk, founder and chairman of Goldmoney.com, one of the world's largest providers of physical bullion for retail and institutional investors. "It’s a company with a good reputation."

Founded in 1977 by current president Bart Kitner, privately held Kitco is one of the most popular coin dealers in North America and has offices in Hong Kong and Shanghai. The company's website, which carries live spot prices and expert market commentary, claims to attract nearly one million visits daily.

Revenue Quebec alleges it has identified various networks within the gold industry where businesses make bogus transactions in order to claim input tax refunds. It claims the six-step scheme is essentially based on a repetitive cycle of processing pure gold into scrap gold, which is, in turn, sent to a refiner to be transformed once again into pure gold.

"Note that the scheme is based on bogus transactions made in order to claim input tax refunds," the ministry said in a statement. "No actual commercial activity ever takes place. ... With each [cycle], fraudulent gains grow and the scheme expands using the amounts received from the government."

Kitco defended itself, saying it has "never participated in any tax fraud, nor has it ever carried out any fictitious transactions. In all respects Kitco vigorously contests all aspects of Revenue Quebec's investigation."

The company won court approval to appoint an interim receiver, RSM Richter, to help it deal with the allegations and negotiate a tax assessment amount that is outstanding. "Revenue Quebec would like to have that amount due," Ms. Dozois said. The receiver has been appointed "to make sure that we continue our normal operations while we're negotiating that amount."

Addressing the allegations, Kitco suggested it is being held "unjustly" responsible for the actions of its suppliers.

The company said in a statement that it buys precious metals scrap and pays its suppliers sales taxes on these purchases for which it receives a tax credit. It said: "It is the responsibility of these suppliers to pay back the sales taxes to Revenue Quebec." The ministry "alleges that some of these suppliers have not remitted the taxes paid to them. Revenue Quebec is unjustly holding Kitco responsible for the unremitted taxes, which led to the issuance of the tax assessments."

In addition to the two companies named, the department named five individuals it believes were involved in producing fake bills related to false tax declaration. They are Viken Gebenlian, Haroutioun Dakessian, Oskan Hazarabedian, Benjamin Bensimon, and Shadia Khatib. No further information was given about the individuals.

The revenue department regularly conducts investigations into alleged fraud and tax evasion. But rarely do the results of the investigations result in sweeps of this size. If found guilty, any persons complicit in tax fraud are required to pay an amount equal to the tax evaded, as well as the applicable interest and penalties.

They also face fines and a maximum prison term of five years.

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Gold Dealers in Crosshairs of Quebec Tax Agency

By Bertrand Marotte
The Globe and Mail, Toronto
Saturday, June 11, 2011

http://www.theglobeandmail.com/report-on-business/gold-dealer-in-crossha...

High-profile precious metals trader Kitco Metals Inc. vows to vigorously fight accusations that it took part in an elaborate fraud involving more than 100 companies that allegedly bilked the Quebec government of $150-million in sales taxes on close to $2-billion in transactions.

The Montreal-based trading and research company, which bills itself as one of the largest retailers of precious metals in the world, and another Montreal company, wholesaler Carmen International Inc., are among more than 100 companies and dozens of individuals named in Revenue Quebec allegations of a sophisticated false-billing operation.

Revenue Quebec said more than 175 investigators swooped down on businesses, homes, accountants' offices, and other sites on Thursday, with more than 70 search warrants in hand. The targets included locations in Montreal and several suburbs, north and south shore communities as well as St-Bernard-de-Lacolle, near the U.S. border.

The tax agency alleges that two separate networks used artificial transactions involving a cycle in which pure gold (which is not taxable) was converted into gold scrap (which is taxable), then shipped to a refiner to be once again transformed into pure gold.

The transactions were allegedly used to make phony claims for refunds on sales taxes on the gold that was rendered into scrap. None of the allegations have been proved in court.

Revenue Quebec alleges that Kitco played a key role in moving the gold through the various stages of the cycle.

But Kitco said in a news release that it never participated in a tax fraud and has never carried out any fictitious transactions.

The company said it buys precious-metals scrap and pays the suppliers sales taxes on these purchases, for which it receives a tax credit. Kitco said that is up to the suppliers to pay back the sales taxes to Revenue Quebec and that if some of those suppliers have not remitted the taxes paid to them, then the tax agency is unjustly holding Kitco responsible.

An employee at Carmen International said there would be no comment on the matter.

Revenue Quebec said in a news release that it has a duty to be "intransigent with those who flout fiscal rules and can proceed with penal proceedings against them." Fines of between 125 per cent and 200 per cent of the taxes evaded can be imposed, as well as prison terms of up to five years, it said.

Sharlene Dozois, Kitco's marketing director, said in an interview that the search-and-seizure action taken by Revenue Quebec agents recently was completely unexpected. "We were in ongoing negotiations to settle" sales-tax related issues, she said. "These had been ongoing for some time. We were co-operating with them every step of the way," she said, declining to provide details of the talks.

Kitco said it will be better able to fight for its good name after having been granted court approval Friday allowing it to continue operating under the purview of receiver RSM Richter Inc. in the event that assets were seized.

One of Kitco's key partners is the Royal Canadian Mint, which refines scrap gold for the company. Kitco, in turn, is a major distributor of the Mint's products.

"We're aware of the allegations. We are monitoring the situation day by day," Mint spokesman Alex Reeves said Friday. "We have had a relationship with Kitco for over 30 years. It's an important distributor of our gold and silver bullion products."

According to Revenue Quebec, the alleged scam worked this way: Supplier A sells a quantity of pure gold to refiner B. Pure gold is not subject to sales tax, so there is no impact on provincial sales tax. Refiner B melts the gold into scrap, which makes it subject to tax.

Refiner B then sells the scrap back to Supplier A. The scrap is subject to sales tax, so the refiner adds the provincial tax to the bill. But Refiner B does not remit the sales tax to Revenue Quebec. Supplier A requests a tax refund from Revenue Quebec for the sales tax paid to Refiner B. Supplier A then sends the scrap gold to again be transformed back to pure gold.

The tax agency outlined the allegations in a detailed court document of more than 100 pages. It said the investigation into Kitco's operations covered a period from 2006 to 2010.

* * *

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

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