Revenu Quebec has initiated a massive series of searches and seizures in the Montreal area, alleging that companies and individuals in the gold refining and trading industry engaged in widespread tax fraud on transactions worth $1.8-billion, according to Canada's Financial Post.
The tax department has named only two companies publicly as being the subject of its investigations – Kitco Metals Inc. and Carmen International Inc.
Kitco is well known among gold buyers and is one of the major dealers of gold and silver coins in the world.
Founded in 1977, Kitco's 200 employees buy and sell silver, platinum, palladium and rhodium from offices in Montreal, New York, Hong Kong and Shanghai. Its website, which carries live spot prices, attracts nearly 1 million visits daily.
More than 175 government investigators conducted the sweep this week, targeting businesses, residences, accountant offices and bankruptcy trustees. Revenu Quebec asserts $150-million worth of taxes were avoided.
“Revenu Quebec has a duty to be intransigent with those who contravene financial rules and can begin legal proceedings against them,” the department said in a statement. The maximum prison term for anyone found guilty in relation to tax evasion is five years, it said.
Revenu Quebec investigates widespread gold fraud
Comments Twitter LinkedIn Email .Nicolas Van Praet Jun 10, 2011 – 7:53 AM ET | Last Updated: Jun 10, 2011 12:07 PM ET
Montreal – Revenu Quebec has initiated a massive series of searches and seizures in the Montreal area, alleging that companies and individuals in the gold refining and trading industry engaged in widespread tax fraud on transactions worth $1.8-billion.
More than 175 government investigators conducted the sweep this week, targeting businesses, residences, accountant offices and bankruptcy trustees. Some 125 companies are complicit in the scheme that bilked the government of more than $150-million worth of taxes, Revenu Quebec asserts. No arrests have so far been announced.
The tax department has named only two companies publicly as being the subject of its investigations – Kitco Metals Inc. and Carmen International Inc. Privately-held Kitco, one of the largest retailers of precious metals in the world, denies the allegations against it.
The crackdown marks another major fraud concern for corporate Canada. It comes as the Ontario Securities Commission probes the activities of Sino-Forest Corp., the Toronto Stock Exchange-listed company whose operations in China came under intense scrutiny last week when a report claimed that its assets and revenues had been vastly overstated.
“Revenu Quebec has a duty to be intransigent with those who contravene financial rules and can begin legal proceedings against them,” the department said in a statement. The maximum prison term for anyone found guilty in relation to tax evasion is five years, it said.
Two separate networks of individuals and companies are at the heart of the false-billing scheme, Revenu Quebec said. The six-step fraud involved companies using artificial transactions to obtain refunds of taxes that were never actually paid as gold was turned into scrap and then refined back into its pure state.
“Contrary to Revenu Quebec’s allegations in a press release published, Kitco Metals Inc. has never participated in any tax fraud, nor has it ever carried out any fictitious transactions,” the company said in a statement released late Thursday. “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. Its daily operations are continuing as they normally do, said company spokesperson Sharlene Dozois.
“[We appointed the receiver] to protect the interest of everyone and have someone work with us through the process,” Ms. Dozois said. “We did that voluntarily.”
Kitco says it is being held unjustly responsible for the actions of its suppliers.
The company explained 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 is the responsibility of these suppliers to pay back the sales taxes to Revenu Quebec.
[The ministry] alleges that some of these suppliers have not remitted the taxes paid to them. Revenu 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.
(htAndreGrillon)
As per Harvey Organ:
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The charges against Kitco are quite astonishing. I will try and describe the charges so you can understand what is happening here.
It is alleged that Kitco and other company at the centre of the ring were involved in a tax scam in the conversion of pure gold into scrap gold and back into pure gold.
Pure gold is non taxable in Canada. Gold with copper or other metals in it must be sold or bought with a sales tax. In Quebec, for several years, they have had a harmonized tax called an HST which includes the Federal GST of 5% and the Provincial Sales tax of 8%. Business pays the 13% and use this as an input credit. They charge 13% of all of their sales and remit the difference between the sales tax collected and input tax credits. Gold only in pure form is non taxable.
Ontario until last year had a separate Federal sales tax called a GST of 5% which was added to a provincial tax of 8%. These were merged into an HST last year.
Here is how the scam went.
Kitco supposedly took ounces of pure gold say 1000 oz from their inventory and sold it to a refiner A. Let us say that the sale price was 1500.00 per oz, Canadian.
Thus the sale price will look like this:
1,000 oz of gold x 1500.00 or 1,500,000.00
Kitco would receive a cheque for 1.5 million dollars .
Step no 2:
Refiner A adds 10% copper (6 lbs at a cost of 24.00 dollars) and sells the 1000 oz back to Kitco as scrap gold:
The invoice would look something like this:
Number of oz turned into scrap: 1000 oz
Cost:
1,000 x 1500.00 gold = $ 1,500,000.
Cost of Cu: $ 24.00
Cost of making scrap: $1,000.00
total cost 1,501,024.
HST: 195,133.12
total invoice price: $1,696,157.12
Step no 3:
Kitco writes a cheque for $1,696,157 to the refiner
and then claims the $195,133.12 as an input credit against other sales taxes.
The refiner however does not remit any sales tax on his end.
Why? because all the paperwork was phony. There was no activity.
Why on earth would Kitco turn pure metal into scrap metal?
Net cost back to Kitco: $1,501,024.00 (they now have 1000 oz of scrap gold.)
Their out of pocket cost for far is now 1,024.00 dollars.
Step no 4:
They then send this scrap gold to another refiner B who extracts the copper from the gold.
The invoice from them would look something like this:
1000 oz of gold to be refined; cost 1000.00
HST 13% 130.00 dollars
total cost 1,130.00 dollars.
the total cost to Kitco is now $2,154.00 to get the same gold back.
I would presume that the refiners write cheques back to Kitco for part of the phony sales tax credits received by the refiners who did not submit the dollars to Revenue Canada.
Even though this started as a provincial audit, the Feds will no doubt will be involved as they receive the total dollars to start with and then remit to the provinces their share.
It is also interesting that Kitco immediately filed for an interim receiver Richter Usher Vineberg as this will no doubt turn into an absolute mess.
The gold at Kitco is unallocated and thus can be attacked by Revenue Canada. This would create the biggest run on a "bank" in history for Canada as depositors of gold at Kitco immediately seek redemption. Thus Kitco had to act immediately.
The unallocated gold is surely a mess but when you add in the tax consequences, this will dwarf the Refco fraud.
The investigators noted that almost all of the invoices were made up and totally fake.
I do not believe that Kitco would have any use for scrap gold. Most individuals take their scrap gold and refine it to pure gold. Why would Kitco change their pure gold to scrap gold?
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