Canada

Quebec government adds to its arsenal against aggressive tax planning

TAX ALERT  | 

Over the last decade, Quebec has been actively engaged in the management, detection, and obstruction of aggressive tax-avoidance schemes. In 2009, a broad legislative framework was introduced to curb aggressive tax planning in Quebec. The rules have since been significantly revised and expanded in furtherance of this objective.

For example, in the 2019 budget, the Quebec government undertook to implement several tax fairness measures, including rules that would block businesses’ involvement in public contracts in certain circumstances. In this regard, on September 16, 2019, Bill 37 - an act mainly to establish the Centre d’acquisitions gouvernementales and Infrastructures technologiques Québec - was introduced. This Bill will restrict taxpayers’ abilities to enter into contracts with public bodies if they have been assessed with general anti-avoidance rule (GAAR)-based penalties.

Anti-avoidance legislative framework in Quebec

The Quebec Taxation Act (QTA) has its own GAAR, the wording of which is virtually identical to the federal GAAR. See our previous Tax Alert for a brief overview of the federal GAAR. However, Quebec has taken additional steps to address the challenges that aggressive tax planning has created for the provincial treasury. First introduced in 2009 and substantially modified over the years, the anti-avoidance legislative framework is intended to improve tax fairness and provide Revenu Quebec with comprehensive information pertaining to perceived aggressive tax planning.

One major feature of the anti-avoidance regime is disclosure. Revenu Quebec requires taxpayers to disclose transactions if they bear certain hallmarks. Taxpayers that carry out a confidential transaction, a transaction involving conditional remuneration, a transaction involving contractual coverage, or other designated transactions (as prescribed by the relevant rules), must make a ‘mandatory disclosure’ of any such transaction to Revenu Quebec. Taxpayers may also choose to make a ‘preventive disclosure’ of any transaction entered into.

If a transaction has not been disclosed and is subject to a Quebec GAAR challenge, Revenu Quebec may issue a GAAR-based assessment beyond the normal reassessment period and apply a GAAR-based penalty. Quebec’s GAAR-based penalties do not have a federal counterpart. These penalties are: 1) a penalty amounting to 50 per cent of the amount of the tax benefit denied when a GAAR-based reassessment is issued, and 2) a penalty imposed on a promoter as defined in the QTA of a transaction in respect of which a GAAR-based assessment is issued 100 per cent of the fees paid to the promoter.

Breakdown of Bill 37

The Bill proposes myriad amendments, most of which are related to the governance of public bodies. Specifically, the Bill unveils amendments to provincial legislation, the Tax Administration Act and the Act respecting Contracting by Public Bodies.

Under the proposals, the public procurement authority may record certain persons involved with transactions in respect of which a GAAR-based penalty under the QTA is imposed, in the ‘Registre des entreprises non admissibles aux contrats publics’ (RENA).

The persons targeted by the proposals include:

  • A business on which a QTA GAAR-based penalty has been assessed
  • Promoters of the violating transactions such as persons or partnerships who commercialize, promote in any way, support or receive directly or indirectly any consideration therefore
  • Businesses related to a person on whom a GAAR-based penalty has been applied

The inscription to RENA lasts five years. Thus, the targeted persons above will not be eligible to enter into public contracts for five years from the date of recording in the RENA. Moreover, the penalties imposed will be taken into account by the ‘Autorité des marchés publics’ (AMP) when it comes to deciding whether or not to authorize a business to enter into contracts with a public body. That is, a taxpayer’s prior GAAR-based assessment will be taken into consideration, even beyond the five year registration period in RENA, in the AMP’s authorization process for entering into public contracts.

Notwithstanding the above, taxpayers may be exempted from the QTA’s GAAR-based penalty and from being listed in the RENA if the taxpayer makes a preventive disclosure to Revenu Quebec within 60 days of the passage of the Bill. The Bill does not specify the date on which the GAAR-related provisions come into effect.

Doubling down on anti-avoidance

The Bill sends an unambiguous signal to taxpayers that Quebec intends to continue its campaign against aggressive tax planning. Beyond pecuniary penalties, the consequences of engaging in transactions subject to the provincial GAAR could extend to punitive, long-term bans from entering into public contracts.

AUTHORS


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


CONTACT

Maria Severino

National Tax Leader


Recent Tax Alerts

Cross-border debt financing - an overview of Canadian tax implications

Our authors highlight tax rules that businesses often overlook during cross-border debt financing via shareholder loans.

  • January 22, 2020

Annulment or rectification - what can taxpayers do to address an error

A recent case signals how opting to annul versus rectify an error may affect the outcome, cost and timeliness of the tax dispute process.

  • January 15, 2020

How OECD Pillar One could change international tax processes for MNCs

The OECD’s proposal to combat taxation challenges arising from the digital economy could have drastic implications for multinational firms.

  • December 18, 2019

Federal fuel charge: Impact on energy sector and Alberta businesses

The federal fuel charge and the TIER program aim to work in harmony and will become effective on various taxable fuels on January 1, 2020.

  • December 17, 2019

2019 year-end tax planner

An overview of certain key tax planning issues for business owners, individuals, employees, and corporations in preparation for year end.

  • December 12, 2019