Re: Lawsuit Filed in British Columbia Against Auto Manufacturers for Practices in Contravention of the Competition Act
March 24, 2008
Dear Canadian Vehicle Importer:
As a result of the strong Canadian dollar, Canadians imported a record 190,000 vehicles in 2007 from the United States. This trend is continuing in 2008 because the savings associated with purchasing a vehicle in the United States are considerable, usually in the range of 30%, but as high as 50% for some models.
Vehicle manufacturers stand to lose a considerable amount of money if this momentum continues, and are taking steps to stem the flow of vehicles entering from the United States. Already, Canadians are facing considerable and growing barriers when importing vehicles into Canada.
It is our position that the trade barriers erected by vehicle manufacturers are unlawful. The purpose of our lawsuit is to force vehicle manufacturers to comply with the law and to obtain compensation for Canadians who have suffered losses as a result of these exploitive policies.
If you are a resident of British Columbia or Alberta and have imported a vehicle from the United States, review the Statement of Claim to determine if you qualify as a plaintiff in this lawsuit. The Statement of Claim, as well as a Questionnaire and a Plaintiff Registration Form are currently available on the web site www.UCanImport.com. Dinning Hunter Lambert & Jackson is seeking court approval for this lawsuit to become a “class action” suit, which it anticipates having by June of 2008. All individuals who register will be contacted for further information on their particular case. It is also expected that other car manufacturers will be added as defendants, prior to certification approval. If you have been adversely affected by these exploitive practices, but purchased from a manufacturer not currently named as a defendant, you are still encouraged to register.
NOTE: This lawsuit creates the opportunity for individuals who have lost money to recover it. However, submission of documentation does not obligate you to participate in the lawsuit. In addition, once class certification is obtained, you are not at risk to pay any costs if the suit is unsuccessful. The costs will be borne by Westport Motors, the proposed representative plaintiff.
We welcome your interest and support.
About Dinning Hunter Lambert & Jackson
Dinning Hunter Lambert & Jackson has been providing a full range of legal services in Canada for over twenty-five years. The firm offers its expertise in areas such as complex litigation, aboriginal law, commercial and corporate law, immigration, insurance, personal injury, real estate, and estate law. Dinning Hunter Lambert & Jackson offers lawyers who are members of the bars of British Columbia, Alberta, and Saskatchewan.
Sincerely,
Wm. Rory Lambert
Dinning Hunter Lambert & Jackson
Tel: (250) 381-2151
Fax: (250) 386-2123
rlambert@dinninghunter.com
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3 comments:
Here are some thoughts that I posted on several other blogs in late December 2007. However, no one seems to have picked on them. This deals with the probable violation by BMW Canada (and many of the other foreign car manufacturers) of the Transfer Pricing Rules in section 247 of the Income Tax Act (Canada).
BMW Canada buys its cars from its foreign corporate parent, Bayerische Motoren Werke AG (“BMW Germany”). (A similar buying structure would apply to other Canadian subsidiaries of foreign car manufacturers.) Similarly, BMW of North America (“BMW USA”) also buys its cars from its foreign corporate parent (BMW Germany).
The following illustrates the wholesale pricing differential between Canadian and US marketed BMWs. For a 2008 BMW 650 coupe (base car, no options), the wholesale price to the Canadian dealer from BMW Canada is about $92,000 (with a retail price to the public of $101,500). However, in the US the wholesale price to a US dealer is about $67,000 (with a retail price to the public of about $75,600) - a $25,000 difference. No doubt, these wholesale prices are the direct result of the pricing agreements that each of BMW Canada and BMW USA has with their corporate parent (BMW Germany).
Section 247 of the Income Tax Act (Canada) relates specifically to transactions or arrangements between a taxpayer (such as BMW Canada) and a non-resident person with whom that taxpayer does not deal at arm’s length (i.e., BMW Germany). The transfer prices adopted by a group of non-arm’s length parties (such as between BMW Germany and BMW Canada) directly affect the profits to be reported by each of those parties in their respective countries. Canada’s transfer pricing legislation embodies the arm’s length principle and requires that, for tax purposes, the terms and conditions agreed to between non-arm’s length parties (BMW Canada and BMW Germany) in their commercial arrangements be those that one would have expected had the parties been dealing with each other at arm’s length.
In effect, if BMW Canada buys a new BMW 650 from BMW Germany for the same price as BMW USA pays (which is probably about $25,000 less than it now pays), then on the resale of the vehicle for $101,500, the profit recorded by BMW Canada would be $25,000 higher. Instead, that $25,000 of extra income is reported and taxed in Germany in the hands of BMW Germany and is not taxed in Canada. Hence, the Canada Revenue Agency (formerly Revenue Canada) is receiving tax on about $25,000 less income on the sale of the BMW 650 in Canada (which at a 35% tax rate is about $9,000 less tax) than it would be entitled to receive than if BMW Canada were paying the same price to BMW Germany as BMW of NA pays to BMW Germany.
The transfer pricing rules allow the Canada Revenue Agency to treat BMW Canada’s cost of the vehicle as the lower amount (even thought it pays the higher amount). As a result, this would increase the income taxed in Canada by $25,000 and give the Canadian government (not the German government) the additional $9,000 in tax revenue.
In other words, the Canada Revenue Agency should be auditing the income tax reporting of BMW Canada (as well as the other Canadian marketing subsidiaries of foreign car manufacturers) to ensure that if these cross border pricing discrepancies continue, Canada gets its fair share of the extra income tax from each sale.
The transfer pricing rules in Canada are designed to ensure that Canadian taxpayers (such as BMW Canada), who are non-arm’s length members of a corporate group that engages in transactions with a non-resident member of that group (such as BMW Germany), report substantially the same amount of income as they would if they had been dealing with each other at arm’s length.
Section 247 of the Income Tax Act also contains penalty provisions where the transfer pricing rules are violated. These penalties can be substantial.
At the end of the day, the real cause of the higher Canadian vehicle prices is the pricing regime set by the foreign car manufacturers when selling cars to their Canadian subsidiaries. I sympathize with the Canadian dealers, who are caught in the middle and are forced to sell their cars at prices higher than their dealer costs, or lose money themselves on each sale. I would much prefer to purchase from a Canadian dealer, but in order for that to happen Canadian dealers must be able to buy their cars at wholesale prices which are competitive with US dealer costs. The system would then balance out and Canadians would get the benefit of their higher Canadian dollar.
If “jobs” are being lost in Canada because of Canadians buying cars in the US, it is the direct result of the foreign car manufacturers inflating their prices to their Canadian subsidiaries, contrary to the transfer pricing rules discussed above. The jobs are not being lost because ordinary Canadians trying to save money on one the largest purchases that they will make in a year. If the impediments to importing US sourced vehicles were eliminated (by such things as standardizing Canadian vehicle requirements with those in the US), the flood of imported cars from the US would VERY VERY quickly cause the foreign car manufacturers to lower their prices to their Canadian subsidiaries to be competitive with these US prices. People would then STOP buying cars in the US and would resume buying in Canada. The result would be the lowering of vehicle prices across the board in Canada.
On this latter point, the Canadian inflation rate would take a HUGE drop and Canadians would begin realizing the full value of their Canadian dollars as Mr. Flaherty (Canadian Minister of Finance) has often complained we are not.
Our Canadian federal government must deal with this issue immediately. This must include the IMMEDIATE removal of the provisions added which give the Canadian subsidiaries of foreign car manufacturers (such as BMW Canada, etc.) the right to determine the admissibility of US source cars coming into Canada (along with the “roadblocks” of their unreasonable fees and unnecessary vehicle modifications which they is now imposing).
I ask the question: which party has the most to gain from restricting the import of US sourced BMWs into Canada? The answer: BMW Canada. Therefore, to give BMW Canada the right to dictate and control the process of admitting BMWs into Canada (through its unreasonable fees and unnecessary modification) is a direct and flagrant CONFLICT OF INTEREST and a severe financial detriment to Canadian purchasers. “It is the same as putting the fox in charge of protecting the chicken coupe.”
All of this is a sad reflection on the vehicle sales process in Canada and how ordinary Canadians are being cheated by the big foreign vehicle manufacturers.
I am having a big problem related to what you are speaking about. I habe a few business men in Italy who want to purchase BMW here in the states and ship them back to rome. But every BMw dealership is telling em the same story; that they cannot sell to any non US resident and cannot export any vehicle outside the us UNLESS that is they the non resident is purchasing a USEd BMW and they keep citing a US LAW ( they never explain what the law says) as to why that is but they have yet to explain to me what that law is exactly .Can you explain what law exactly they are referring too??? I would really appreciate an answer!
Thank you for your post.
BMW regulates its dealerships and mandates a geographic area where they may sell new vehicles. That means that dealerships are prohibited from selling brand new vehicles to people who will then export the cars to other countries.
If you would like to have more information on how to potentially go around this restriction, please e-mail me at info@ucanimport.com and I will share a couple of tips with you.
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