UPDATE 2-Silver Wheaton stock falls on tax audit; top investor backs company

(Adds comments from CEO, shareholder, competitor)

VANCOUVER, July 7 (Reuters) - Shares of Silver Wheaton Corp fell more than 10 percent on Tuesday after the mining finance company said it might have to pay $200 million or more in taxes and penalties in Canada.

Vancouver-based Silver Wheaton said late on Monday it had received a letter from the Canada Revenue Agency, which is proposing taxing about C$715 million ($565 million) of income earned by the company’s foreign units between 2005 and 2010.

With a market value of around $7 billion, Silver Wheaton is the world’s biggest mining “streaming” company. It pioneered streaming, which involves providing financing to miners for the right to buy a percentage of their future metal production.

Silver Wheaton will “vigorously defend” its tax filing position and remains confident in its business structure, Chief Executive Officer Randy Smallwood said on a conference call.

The market has been waiting for more than three years for word from the revenue agency on its audit, which Silver Wheaton disclosed in April 2012.

Van Eck Associates Corp, which with a stake of around 4.55 percent is Silver Wheaton’s biggest shareholder, believes a court would back Silver Wheaton’s tax position, portfolio manager Joseph Forster said.

“It’s a fantastic company, and it’s probably the best way to gain exposure to silver,” Foster said in an interview. “We’re standing behind the company 100 percent.”

A CRA spokeswoman was not immediately available for comment.

Sandstorm Gold Ltd, a small competitor to Silver Wheaton, is not being audited, CEO Nolan Watson said.

“The vast majority of our deals are directly though Canada and already subject to full Canadian tax, so transfer pricing would not be applicable on most assets,” he said in an email.

Another rival, Franco-Nevada Corp, was not immediately available.

Silver Wheaton estimated it would be subject to federal and provincial taxes of about $150 million on its foreign units’ income. The revenue agency is also seeking to apply transfer pricing penalties of about C$72 million.

Tax years beyond 2010 could still be audited.

Silver Wheaton’s stock was down 10.2 percent at C$19.95 in afternoon Toronto Stock Exchange trading. In New York, it fell 10.7 percent to $15.66.

$1=$1.275 Canadian Additional reporting by Zara Mascarenhas in Bengaluru; Editing by Peter Galloway and Lisa Von Ahn