Charles and Stephen Bronfman in 1999. Photo: Shaun Best/ Reuters
In October 2005, Jonathan Kolber fired off an 18 -page fax from his business offices in Israel about the Cayman Islands trust of which he was beneficiary. He hand-wrote on the cover sheet: “CONFIDENTIAL!!”
One of the records in the fax was an email that was sent to him from a fiscal consultant. It noted that as a result of the switch of the debt from Claridge Israel, the Kolber trust had paid the US-based Bronfman trusts about $40,000 in interest charges.
The email went on to say:” As there was never supposed to be interest paid on this debt in substance( merely in kind ), the[ Kolber trust] needs to be compensated by the Bronfman trusts for these cash outlays, in some manner to be agreed upon by both parties .”
A second email from the financial consultant contained in the fax gives details of the “manner” by which the best interest issue might be resolved. It records that senior Bronfman officials told Kolber that they would “‘ build you whole’ somehow “.
One idea floated in the email was to get Kolber to” invoice Claridge a fee for services rendered, equal to the interest which Claridge has charged to the[ Kolber trust] on these loans “. The Kolber trust would then mark on its books the sums as receivable fees instead of describing them as they really were- reimbursement of the interest payments.
Experts consulted by news organizations investigating the Paradise Papers said both the
US and Canadian taxation authorities viewed no-interest loans as red flag for potential taxation avoidance strategies. Grayson McCouch, a tax professor at the University of Florida, told CBC that in his view the US Internal Revenue Service( IRS) would probably want to interrogate the transactions.
” If it’s done to disguise or to reverse the purported interest payments, then it could look to an observer, especially a revenue service, like evidence of fraudulent intent ,” he said.
Steven Rosenthal, a senior fellow at the Tax Policy Center, told the Guardian that under US tax law any loan greater than $10,000 that charged no or below-market interest rates would be assumed by the authorities to bear imputed interest that would bring it up to applicable federal levels.” The lender are required to report it as taxable income and pay taxes on it ,” he said.
The head of the international tax program at the University of Michigan, Reuven Avi-Yonah, told the International Consortium of Investigative Journalists that tax laws generally barred transactions that failed to report interest.” You can’t have interest-free loans between related parties ,” he said.
Jonathan Kolber stressed to CBC that he had relocated his family’s trust from the Cayman Islands to Israel a few years ago following a altered in Israeli tax law.” The trust proclaimed Israeli status and we paid back taxes and whatever they asked for ,” he said.
Kolber went on to deny any wrongdoing:” I’ve never broken any laws and this was all reported and so transparent, and is now an Israeli entity. This has all been declared and above board and properly handled with full transparency .”
Stephen Bronfman and Leo Kolber declined to comment.
A lawyer representing Jonathan Kolber and Bronfman parent and son denied any improper activity on their proportion. He said:” None of the transactions or entities at issue were effected or established to evade or even avoid taxation. My clients “ve always been” acted properly and ethically, including fully complying with all applicable laws and requirements .”
The lawyer said that the Cayman Islands trust was set up because of volatility in Israel at the time. Kolber was not liable for taxation in
Canada under existing law bearing in mind the fact that he no longer lived there; nor was there any tax owing in his adoptive Israel.
The lawyer confirmed that Stephen Bronfman did make a $5.3 m loan to the Kolber trust in 1997, but said it was repaid within five months.
Of the proposed reimbursement of interest from the two Bronfman trusts based in the US to the Kolber trust and the suggestion that it be portrayed as” services rendered “, the lawyer said:” No invoices were sent and nothing was paid .” He added that” non-interest-bearing loans by a US person do not violate US law “.
Trudeau was contacted at his official prime ministerial mansion, 24 Sussex Drive, but chose not to respond.
* Such articles was amended on 6 November 2017. An earlier version said Justin Trudeau was premier. This has been corrected to prime minister.