Government officials in Québec want to crack down on tax avoidance. On Nov. 10, 2017, the Minister of Finance, Carlos Leito, unveiled a new 260-page document called the “Tax Fairness Action Plan.” In the plan, the government outlines 14 new actions that prioritize “recovering all of the tax revenue” owed to Québec. Accountants, bookkeepers, and small business owners alike need to pay attention; failure to comply with the general anti-avoidance rule (GAAR) can result in penalties and even prohibition from doing business with the government.
Aggressive Tax Planning
At the same time it released the Tax Fairness Action Plan, the government published information bulletin 2017-10 that implores Canadians to “Bolster the Fight Against Aggressive Tax Planning.” The document calls upon all taxpayers to pay their fair share and to help sustain confidence in the system.
International corporations stand front and center in the renewed fight against aggressive tax planning. Revenu Québec received an assist from the Canada Revenue Agency (CRA), which will provide country-by-country reports for nations under tax treaties with Canada or that regularly interact with Québec-based corporations.
This means Revenu Québec will begin collecting information regarding:
- All foreign assets held abroad by Canadian residents
- Electronic funds transfer (EFTs) with transfers exceeding $10,000
- Tax returns related to foreign affiliates of Canadian corporations
The plan proposes a new reward program for taxpayers to spy on one another. Informants who lead the government to material information could receive up to 15 percent of income taxes recovered by Revenu Québec. The hope is for the new measures to stop the hoarding of business or personal assets in havens outside the traditional reach of Québec’s tax authorities.
The rise of e-commerce is exciting for consumers and businesses, but it can be a nightmare for governments trying to collect revenue. Digital transactions have caused recent tax fights in the United States, Canada, Europe, and Asia.
Quebec’s action plan argues that tax authorities in Québec and the federal government each look to recommendations from the Organisation for Economic Co-operation and Development (OECD). According to the OECD, foreign suppliers that have no presence in Canada should be required to register for a value-added tax (VAT) account.
Québec wants to add an additional requirement that such suppliers would need to register for the Québec sales tax and the goods and services tax/harmonized sales tax (GST/HST). Only companies with “significant sales” in Québec would need to register.
Stronger Penalties for Noncompliance
In addition to paying informants and bolstering its partnerships with other tax agencies, the action plan also strongly increases the penalties for noncompliant taxpayers. These include:
- GAAR assessments that carry a 50 percent denial of tax benefits, up from 25 percent.
- A new penalty for promoters of transactions that lead to a GAAR assessment.
- Prohibition from engaging in public contracts if an individual or business is found to be noncompliant.
Taxpayers and their accountants and advisors need to take such initiatives (and the corresponding penalties) into consideration. Managing tax risks is more important than ever in Québec, particularly with regards to possible GAAR assessments. Anyone engaged in tax planning is required to make a mandatory disclosure directly to Revenu Québec.