The Canadian unit of Japan Tobacco Inc. filed for court protection from creditors after the Quebec government demanded $1.05 billion in taxes it alleges is owed on smuggled cigarettes.
JTI-Macdonald Corp., Canada’s third-largest cigarette maker, said it needed court protection to avoid bankruptcy because Revenue Quebec had moved to seize up to 40% of its national revenue.
JTI-Macdonald denied involvement in any smuggling operation, which tax investigators allege occurred in the 1990s and involved shipping Canadian-made cigarettes to the United States and then secretly bringing them back to Canada to avoid high taxes.
The company complained that Revenue Quebec had declared it guilty of smuggling without giving it a proper court hearing, and that it filed for creditor protection under the Companies’ Creditors Arrangement Act, the Canadian version of Chapter 11, after considering other legal options.
“A company doesn’t choose to seek protection under the act lightly,” Chief Executive Michel Poirier said. “There are severe downsides and costs in doing so in order to protect assets and do business normally. At the same time, JTI-Macdonald Corp. awaits the opportunity to defend itself, as well as to protect its reputation and its business.”
JTI-Macdonald and Revenue Quebec did not return calls.
The company, based in Toronto but with manufacturing operations in Montreal, said business would continue as usual while under court protection. The filing was made Monday in Ontario and the preliminary hearing in the case is not scheduled until April, it said.
JTI-Macdonald also faces a federal lawsuit in Ontario and fraud and conspiracy charges filed by police because of tobacco smuggling, which soared after governments raised tobacco taxes sharply in the 1990s.
“The other major companies, Imperial Tobacco and Rothmans Benson & Hedges, have to be paying very close attention,” said Rob Cunningham, senior policy analyst at the Canadian Cancer Society. “In the ‘90s, they exported vast quantities of cigarettes to the United States and these cigarettes came back as contraband as well.”
Imperial Tobacco, a unit of British American Tobacco, and Rothmans Benson & Hedges, owned by Rothmans Inc. and Philip Morris parent Altria Group Inc., declined to comment.
Japan Tobacco said in a statement in Tokyo that the Canadian subsidiary’s filing was by no means an acknowledgment of responsibility for the accusations, and the unit would continue taking all possible measures, including legal action, to protect its business.