BHP Billiton ‘has no intention of becoming incorporated’ in Saskatchewan: SREDA; company says tax abatement request an ‘administrative error’
BHP Billiton is in the midst of a dramatic US$38.6 billion hostile takeover bid for the world’s largest fertilizer producer, Potash Corporation of
The world’s largest mining company, on August 25, 2010, reported earnings of $12.72 billion for the fiscal year ended June 30, more than double the $5.88 billion earned in the previous year.
BHP’s revenue increased 5.2% to $52.8 billion from $50.21 billion. The company’s cash position also improved, swelling 15% to $12.46 billion from last year’s $10.83 billion, in spite of $9.8 billion in capital investment and debt reduction, the Wall Street Journal reported. [BHP vows restraint in its bid for Potash (Wall Street Journal, August 26, 2010)]
Despite the staggering riches, the Australian-based mining giant sought a five-year tax holiday from the City of
City council was set to consider the matter on July 21, 2010. However, just prior to the meeting, representatives from BHP approached corporate services general manager Marlys Bilanski and asked that the request for tax abatement be withdrawn.
“They indicated that there was some confusion when the application was initially made and it was not their intent to request an abatement,” the city said in an email response to a query. There was nothing in writing, only the verbal request.
Gordon Graham, the company’s project director for potash development, elaborated further in an email on August 30, 2010: “The essence of the situation is there was an administrative error made in our office, and we had not planned on applying for the tax abatement. When we discovered that it had however been submitted, and was scheduled for discussion, we asked the council to pull the application.
“At this time we have no plans on resubmitting the application.”
BHP’s explanation seems a little suspect given that the application had been in the system for nearly two years and company lawyers were corresponding with officials in
The city’s business development incentives policy is designed to encourage companies to locate or expand their operations in
The policy offers corporations meeting the eligibility requirements for a property tax incentive a tax abatement of up to 100% of new or incremental taxes in year one, 80% in year two, 70% in year three, 60% in year four, and 50% in year five.
The value of incentives for new or local expansions in the manufacturing or processing sectors that will create 100 or more new, full-time or full-time equivalent employees may be eligible for tax abatements of up to 100% of new or incremental property taxes for a period of five years.
The Saskatoon Regional Economic Development Authority (SREDA) administers the policy on behalf of the city. An incentives review sub-committee consisting of five members of SREDA’s board of directors, one of which is a representative of city council and the general manager of corporate services or designated appointee, evaluates applications.
The SREDA board then reviews each incentive application and reports to city council recommending acceptance or denial of the request.
In a memo dated July 9, 2010, SREDA chair John Cross informed the city’s corporate services general manager that BHP’s incentive application was received on July 28, 2008.
Cross said BHP’s application was complete with one exception: “BHP is not currently incorporated in the
The SREDA board initially approved the application on July 30, 2009, “pending BHP correcting the deficiency in the application.”
BHP legal counsel, Fasken Martineau DuMoulin LLP, in a letter dated July 29, 2009, argued that “BHP Billiton Diamonds Inc. is incorporated pursuant to the Canada Business Corporations Act, under Corporation Number 448237-9, is in good standing with respect to the filing of Annual Returns, and has not been dissolved under that Act, and the Corporation is extra-provincially registered in Saskatchewan under Entity Number 101139980, with all required filings up to date.”
Cross concludes by stating that the SREDA board approved the application for submission to city council.
According to a separate memo from SREDA CEO Tim LeClair to Bilanski, dated February 15, 2010, the organizations incentives review sub-committee recommended approval of BHP’s application in February 2010.
SREDA approved the application without knowing the estimated value of the five-year tax abatement. In an email dated July 16, 2010, Bilanski notes that “this totally depends upon when and to what degree the building will be occupied and finished as tenancy increases. The maximum will be somewhere in the order of $150,000 (includes municipal, school and library taxes.)”
In his memo, Cross describes a similar situation with an application from Alstom Canada Thermal Services requesting a five-year tax abatement. Apparently, Alstom is not currently incorporated in
“If there is no clear reason for Alstom to be incorporated in the
The problem is, regardless of what BHP’s lawyers and the province’s Business Corporations Act say, the application from BHP doesn’t appear to comply with the city’s business development incentives policy.
The city’s incentives policy is explicit; to be eligible for an incentive “all of the following criteria must be met.” The very first item on the list of requirements is: “The applicant must be a legally incorporated corporation in the
Cross said that BHP is not currently incorporated in the province. And yet, SREDA says in a document attached to Cross’s memo that the company “meets all of the eligibility requirements” of the city’s policy.
There is no grey area. The city goes so far as to bold and underline the word ‘all’ to drive home the importance of the eligibility criteria. The policy does not say that being extra-provincially registered satisfies the requirement that applicants must be a legally incorporated corporation in the province. The city has the power to amend the policy but hasn’t.
The policy does provide, upon the advice of SREDA and with the approval of council, for the criteria to “be waived or modified to recognize the uniqueness” of an incentive request. However, SREDA did not advise council to do that. The agency simply recommended the application be approved. BHP may be somewhat new to the city but they’re hardly unique.
BHP’s request for a tax break was all but ignored by the media. It seems only radio stations NewsTalk 650 and NewsTalk 980 took notice.
Mayor Don Atchison, who happens to be a SREDA board member, had no qualms with the tax abatement insisting it is a normal way of attracting business investment.
“Six years from now, when you still have nothing, you’ll still have nothing. It’s not into perpetuity. It’s (just) five years.” [
Following the company’s decision to withdraw its request,
Getting into the potash business has been on BHP’s radar for quite a while.
In the first issue of its quarterly newsletter Potash Pages, the company points out, “The potash industry is a fundamentally attractive one, with only three major basins (
It’s hard to imagine BHP would let a $150,000 tax abatement get in the way of coming to the province. There’s too much money to be made.
BHP is leasing the entire
Discovery Plaza Inc. is owned by John Williams, president of North Prairie Developments Ltd. In the company’s November 2009 newsletter, North Prairie announced that BHP would be “the first major tenant” in the recently completed building.
In April 2006, Williams confirmed that his company bought the building. [Grocery Store Sold (StarPhoenix, April 12, 2006)]
In an interview with the StarPhoenix on April 15, 2008, Williams confirmed that a new office building would be built and should be ready for occupancy by June 2009. Williams said the investment was going ahead even though he had no firm commitment from a tenant.
“We’ve been talking to a few people, but we don’t actually have a firm lead client at this point in time, so we’re still working on a spec basis,” Williams said. “But we think the market’s there.” [Developer plans new four-storey building downtown (StarPhoenix, April 16, 2008)]
BHP’s subsequent tax abatement request in late July 2008 fits the timeline nicely.
However, the BHP website shows the company didn’t move to
SREDA helped roll out the red carpet for BHP on January 22, 2009, hosting a reception at the Sheraton Cavalier to welcome the company to the city.
BHP moved into