Québec Releases Detailed Measures to Combat Aggressive Tax Planning Schemes

Oct 20, 2009

“Out of concern for social justice and with the objective of protecting the integrity of our tax system, the Québec government has decided to review the legislative framework of aggressive tax planning schemes. The immediate result of these measures will be to recover tax that eludes the public treasury and ensure that our tax system is fairer for all taxpayers.”

The Honourable Raymond Bachand
Québec Minister of Finance
(Excerpted from the Press Release, Minister of Finance’s Office, October 15, 2009)

On October 15, 2009, the Québec Minister of Finance announced measures to fight aggressive tax planning (ATP). The measures extend the limitation period for the Québec tax authority (Revenue Québec) to assess transactions under the general Québec provincial anti-avoidance rule (GAAR) and introduce harsh penalties for transactions that are found to be subject to the GAAR. The extension of the limitation period and penalties can be avoided if the transaction is disclosed in accordance with new disclosure regimes introduced as part of the measures to provide an early detection mechanism for Revenue Québec to identify aggressive tax planning at an early stage. The measures are generally applicable to transactions carried out on or after October 15, 2009. They are very broad and could apply to all taxpayers having a connection with Québec, including promoters who transact with such persons and non-residents of Canada carrying on business in Québec through an establishment located therein. These measures could also influence other Canadian tax authorities in their decisions on tax avoidance.

As further explained below, the measures provide for two regimes for early disclosure of ATP transactions: mandatory disclosure for certain stipulated transactions and voluntary early (preventive) disclosure for other transactions. The mandatory early disclosure mechanism targets transactions involving confidentiality or conditional remuneration arrangements. The preventive disclosure mechanism is available for other transactions which may ultimately be found to be subject to the GAAR. Where a transaction is not disclosed on a timely basis, Revenue Québec may assess the transaction beyond the normal limitation period and a penalty of 25% of the additional tax levied in respect of the transaction will apply if it is ultimately found to be subject to the GAAR. Taxpayers may submit a due diligence defence to avoid such penalty. The promoter of a transaction to which the GAAR applies will be subject to a penalty equal to 12.5% of the fees received or receivable in connection with the transaction where the 25% penalty is imposed on the taxpayer who engaged in the transaction by reason of the GAAR applying thereto. The penalty on the promoter may therefore be avoided in respect of a taxpayer who makes a mandatory or preventive disclosure of the transaction or who successfully maintains a due diligence defence. The promoter may also plead due diligence as a defence to avoid such penalty.

The full text of this Update is available  here