On October 15th, 2009, the Québec Minister of Finance
announced the implementation of legislative measures designed to
counter arrangements which it deems to constitute aggressive tax
planning. Briefly, the four main measures announced consist of the
following:
1. Mandatory disclosure to Revenue Québec of transactions
(including arrangements or events) resulting in a tax benefit of at
least $25,000 or resulting in a reduction of income of at least
$100,000, in situations where such transactions are subject to
either an undertaking of confidentiality on the part of the
taxpayer; or a remuneration of the taxpayer's advisor, in
relation to the transaction, that is contingent, in whole or in
part, on the realization of the tax benefit.
The penalty for non-compliance with such disclosure obligations
ranges from $10,000 to $100,000. The basic penalty is $10,000,
increasing by $1,000 for every day starting on the second day
following the deadline to make the disclosure, up to a maximum
penalty of $100,000.
In addition, where a taxpayer fails to comply with a mandatory
disclosure obligation, the normal reassessment period in respect of
that taxpayer (and any person related or associated to that
taxpayer) is suspended in respect of the particular transaction
until such time as the disclosure is made.
2. An expansion of the general anti-avoidance rule (the
"GAAR"), a rule which can deny a tax benefit that
otherwise results from a correct technical application of the
Taxation Act (Québec) (the "Act"), but
that results in an abuse or misuse of the Act or the provisions
relied upon. This amendment is specifically intended to expand the
definition of "avoidance transaction" in order to render
the GAAR potentially applicable to transactions the primary purpose
of which is to obtain a tax benefit resulting from the laws of
Québec other than the Act, from federal laws or from the
laws of a province other than the Province of Québec.
3. A three-year extension of the normal reassessment period of
three or four years where the GAAR applies, thus extending such
period to six or seven years. This extension can be avoided where
disclosure is made; and
4. The application of penalties to both taxpayers and promoters
where the GAAR applies. Such penalties can be avoided where
disclosure is made. The penalty for taxpayers is 25% of the
additional tax payable or reduction of a tax refund and the penalty
for promoters is 12.5% of the consideration received by them in
relation to the particular transaction.
Public Consultation Process
The aggressive tax planning measures, as initially proposed in a
working paper released on January 30th, 2009, were the object of a
public consultation process. Various tax and business associations,
in which several Davies tax lawyers are actively involved, made
representations in the course of this process with a view to
alerting the Minister to numerous serious unforeseen consequences
of this initiative.
Administration of the Aggressive Tax Planning
Measures
Application and Coming into Force
The measures relating to the mechanism of mandatory and preventive
disclosures will be implemented with effect as of October 15th,
2009 to transactions occurring after that date. However, certain
transitional rules are provided. The amendment to the definition of
"avoidance transaction" for the purposes of the GAAR will
have retroactive effect, save for certain specific
exceptions.
Mandatory Disclosures
Specific administrative rules are set forth with respect to
mandatory disclosures:
- Such disclosures must be made by prescribed form;
- Such disclosures will not be considered to be an admission or concession;
- The deadline to make such disclosures for a particular taxation year of a taxpayer is the filing due date of the taxpayer for such taxation year;
- A disclosure will be deemed complete where the prescribed form is filed with Revenue Québec and no additional information has been requested by Revenue Québec within 120 days of such filing; and
- Taxpayers who have omitted to make a mandatory disclosure may avail themselves of Revenue Québec's voluntary disclosure policy in order to avoid the penalties associated with the failure to disclose (which, as noted above, can reach up to $100,000).
Preventive Disclosures
It should also be noted that it is provided that a taxpayer can
avoid the extension of the normal reassessment period and the
imposition of penalties in respect of a transaction by making a
preventive disclosure. Such preventive disclosures must also be
made by a prescribed form by the filing due date of the taxpayer
for the relevant taxation year.
The Bottom Line
These rules may yield unforeseen consequences for corporations and
other entities with activities in Québec. As with any new
tax measures, a proactive approach is the best way to avoid
becoming the object of such unforeseen consequences particularly
with respect to the application of the Québec GAAR.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
