Tax Insights: Quebec action plan targets international aggressive tax planning and e-commerce sales

November 14, 2017

 

Issue 2017-44

In brief

On November 10, 2017, Quebec’s minister of Finance, Carlos Leitao, tabled a 260-page “Tax Fairness Action Plan” (action plan) in the National Assembly. The action plan contains 14 actions that address tax havens, aggressive tax planning, transfer pricing and e-commerce with suppliers having no significant presence in Quebec, among other things. Many of the actions rely on cooperation with federal authorities. 

In detail

Tax Fairness Action Plan

Key actions (some of which are proposed, while others have been put in motion) discussed in the action plan are outlined below. 

Improving tax auditing of Quebec corporate income tax

Country-by-country reports

In accordance with the Organisation of Economic Cooperation and Development’s (OECD’s) recommendations on base erosion and profit shifting (BEPS), the Canada Revenue Agency (CRA) has agreed to provide Revenu Quebec country-by-country reports; these reports are filed by an ultimate parent entity of a Canadian or US multinational group. 

The CRA has also agreed to ask other jurisdictions to give Quebec access to similar reports concerning those jurisdictions.

Bilateral tax treaties

Because Quebec applies Canada’s bilateral tax treaties for purposes of The Taxation Act (Quebec), the action plan proposes that the CRA should obtain permission, from the tax authorities of foreign governments with which Canada has tax treaties, to transfer to Quebec information obtained under these treaties. 

Foreign reporting

To analyze country-by-country reports, tax treaties and other tax information related to foreign activities, the CRA has agreed to provide Revenu Quebec certain foreign reporting information, e.g. Information Returns Relating to Controlled and Not-Controlled Foreign Affiliates (Form T1134). 

International planning group

Revenu Quebec will form a specialized international tax planning group (with approximately 35 members) to: 

  • analyze international income tax issues 
  • work more closely with the CRA, and 
  • advise Quebec’s Ministry of Finance on matters to facilitate prompt legislative changes   

Improving income tax auditing of individuals 

Financial assets held abroad

The CRA has agreed to ask foreign tax authorities for their approval to share, with Quebec and other provinces, information about Canadian residents on financial assets held abroad, obtained under the Standard for Automatic Exchange of Financial Accounts developed by the OECD.

Electronic funds transfers

The CRA has also agreed to give Revenu Quebec access to information obtained from International Electronic Funds Transfer Reports concerning transfers of $10,000 or more (Form RC438).

International planning group

To fully benefit from the information on financial assets held abroad and electronic funds transfers (see above), an additional 45 professionals will join the newly formed specialized international tax planning group, mentioned above.

Voluntary Disclosure Program (VDP)

The action plan concludes that Quebec’s existing VDP adheres to OECD standards, is efficient, and provides information about international transactions. Therefore, the program will be maintained, but it will be modified to reflect any eventual changes to the CRA’s VDP. 

Collecting sales taxes on e-commerce

OECD recommendations

The action plan suggests that Quebec and the federal government jointly follow up on OECD recommendations regarding sales taxes on e-commerce. These recommendations would require foreign suppliers, having no significant presence in the country where supplies are destined, to register for a value-added tax (VAT) account in that country. 

Accordingly, under the action plan, these suppliers would be required to register for Quebec sales tax (QST) and goods and services tax/harmonizes sales tax (GST/HST). The action plan also proposes that a simplified registration procedure be put in place.

Foreign-source tangible goods

An existing agreement between Quebec and the Canada Border Services Agency (CBSA) requires the CBSA to collect QST in respect of non-commercial importation of tangible goods of foreign source. 

Because CBSA and Canada Post facilities are being modernized to deal with the significant increase in the number of parcels to be cleared, Quebec proposes to offer financial assistance to these organizations to aid the modernization.

Goods and services from other provinces and territories

The action plan proposes that suppliers in other provinces and territories that supply tangible and intangible goods and services in Quebec should be required to register for QST; registration requirements should be put in place for this purpose. As a result, Quebec announced that discussions with the federal government and other provinces and territories will take place to ensure QST collection.

Increasing access to the information of the “Registre des entreprises du Québec (REQ)” (Business Register)

To do business in Quebec, a business must register with the REQ. To improve access to information, the REQ will allow searching by an individual’s name. In addition, the REQ will require additional information at the time of registration and when filing updated returns. 

Increasing requirements for trusts 

The rules for trusts that are subject to Quebec income tax or that have a substantial connection with the province will be modified. To ensure a trust is not used for aggressive tax avoidance or evasion, each trust will have a tax identification number. Also, information about the trust, its main parties, and its assets and activities will have to be filed. 

Quebec will consider the CRA’s actions in this regard.

Strengthening penalties 

To bolster its fight against aggressive tax planning, Quebec will increase: 

  • the penalty respecting GAAR-based assessments – from 25% to 50% of the amount of the tax benefit denied
  • the penalty for a promoter of a transaction or series of transactions in respect of which a GAAR-based assessment is issued – from 12.5% to 100% of the fees paid to the promoter 

Generally, the higher penalties will apply to transactions carried out after November 9, 2017.

In addition, the normal reassessment period will not apply when a formal unnamed persons demand is made after November 10, 2017.

These changes are also discussed in Information Bulletin 2017-10 “Measures Announced in the Tax Fairness Action Plan,” released by Quebec Finance on November 10, 2017.

Prohibiting contracts with governmental bodies 

New restrictions will prohibit individuals and businesses that participate in aggressive tax planning schemes to obtain public contracts. The restrictions will also apply to professional firms that assist in implementing aggressive tax planning. 

Obtaining government subsidies

Taxpayers may be required to provide an “Attestation de Revenu Québec” before government subsidies can be obtained. (In general, this document is issued at the taxpayer’s request, confirming that the taxpayer has no unpaid taxes and has filed all tax returns.)

Implementing a Tax Informant Reward Program

Revenu Quebec will implement a Tax Informant Reward Program that will be similar to the federal one and will target transactions and operations that are “window dressing” or subject to a GAAR reassessment. 

 

Contact us

Martin Olivier Boiteau
Partner
Tel: +1 418 691 2473
Email

Éric Labelle
Partner
Tel: +1 514 205 5063
Email

Réal Tremblay
Senior Tax Consultant
Tel: +1 418 691 2453
Email

François Tremblay
Senior Tax Consultant
Tel: +1 418 691 2485
Email

Follow us