Iristel said it would cease operations by mid-April if tax refunds weren’t given
By Ahmad Hathout
A FEDERAL COURT OF APPEAL judge on Tuesday questioned the reliability of a claim made by Iristel that the company would cease operations if it didn’t get tax refunds it said is owed by the Canada Revenue Agency as it completes an investigation into the company’s long-distance call suppliers.
Earlier this year, Iristel filed an interim relief request in the Federal Court to force the CRA to disburse at least $62 million out of about $80 million in refunds the tax agency is withholding as it investigates an allegation that Iristel is using illegitimate suppliers for international long distance calls.
During the early stages of the legal proceedings, Iristel made a claim under oath that if it didn’t receive the money from the CRA by mid-April – well into the Covid-19 pandemic – it would have to cease operations. On Tuesday, in a hearing that was expedited based on the urgency of the matter, judge Anne Mactavish asked “what are we to make of that?” when the company remains operational more than two months after it said it should’ve been declared insolvent.
“Does it not raise a question as to the reliability of your client’s evidence, if they stayed under oath, they can’t survive past April 15th and more than two months later they seem to still be in business?” Mactavish asked pointedly.
Leigh Somerville Taylor, counsel to Iristel, acknowledged the solvency claim made by Iristel pushed the court to have the matter on an expedited timeline but said that “does not make the urgency of the application or the requirement to fund the $69-million deficit any less real or less urgent,” especially considering the Covid-19 pandemic has strained networks burdened with new service delivery requirements as more people work from home.
Taylor noted two late March affidavits of Iristel’s, which highlight the company’s impending doom without funding, were based on “the assessment of the facts and the relationships with the suppliers at that time.
“The opinion of both the chief financial officer and of the CEO was that as things stood, based on the agreements with their suppliers at that time, they would not be able to continue to provide services” she added. “The affidavit of [Iristel CEO Samer] Bishay confirmed there was no other alternative than to start reducing network capacity for the most expensive regions, including the provision of services to remote areas.”
Counsel to the Minister of National Revenue also pressed this point. One of the government’s lawyers tried to summarize Taylor’s comments in reply to the judge’s question on the matter as “Well, whatever, we did our best,” suggesting such a response is “not really good enough.
“There has to be a cogent explanation as to how you can tell one court that you need $62 million immediately or you’ll go out of business and you tell another court, ‘well, we did our best and that’s as close as we can get,’” Michael Ezri said. “It’s $62 million of taxpayer money at the end of the day, and taxpayers are entitled to a little bit more.”
Taylor noted in her response to the judge that had the government wanted to dissect that point, it would’ve asked the company’s witnesses through cross-examination but it didn’t.
Beside the fact the Federal Court based its decision to expedite the matter on the basis of the company’s survival, Iristel also brought the case to the Federal Court because the traditional avenue of going to tax court would’ve taken too long for the company to survive.
Bishay told Cartt.ca earlier this month that $30 million of the withheld tax returns were slated to be used for wireless deployment in Newfoundland and Labrador, expansion in north and east Quebec, and improving capacities in the Arctic. The rest would have been used to repay debts.
“Scaling down operations in these remote areas will prove to be detrimental to Canadians living in locations that are already suffering from a huge infrastructure deficit,” Bishay said.
Taylor argued that the CRA had previously disbursed refunds to Iristel and is only now questioning six months of business – September 2019 to February 2020. Not only that, but Taylor also argued the CRA was satisfied with Iristel’s explanation before the pandemic that without the tax refunds, Iristel would experience financial hardship. The pandemic, therefore, makes the withholding even more bizarre, Iristel argues.
The CRA alleges some of Iristel’s suppliers are engaged in a well-known fraud called a “carousel” scheme. It involves at least one supplier in a chain that collects GST or HST but does not remit it to the government, which ends up being paid out by the government when it comes to disbursing funds – leaving the feds out-of-pocket.
The rest of Tuesday’s hearing explored issues including the jurisdiction of the Federal Court following the issuance of an assessment by the CRA, which the agency claimed took the jurisdiction out of the court; the confidence of the claims made by the agency about the alleged illegitimacy of the suppliers used by Iristel; how the CRA would be able to recover its funds if its allegations are found by the court to be correct, which government counsel said they won’t get back; and whether the company has ultimately met the legal tests of interim relief through a balance of convenience and irreparable harm.
Taylor argued the CRA did not present a case of harm to the agency if it disbursed the funds; rather, the only harm presented was to Iristel in the event that it didn’t disburse, which is the only adequate and effective relief available, she added.
Iristel, which owns Ice Wireless in northern Canada, has said it’s not just that seven million Canadians would be affected by a shutdown of its services – in some cases, areas only receive Iristel-delivered services – but 9-1-1 emergency services may be affected. In some areas of the north, where emergency services are not mandated, customers require SIM cards often provided by Iristel where in other areas they wouldn’t need a service provider to call.
The court said it will make a determination on the matter in due course.
