TAX ALERT

June 21, 2019

Québec Announces Measures Against Aggressive Tax

The Québec Ministry of Finance has released new and expanded measures to combat aggressive tax planning in the province. The new measures may significantly impact taxpayers’ disclosure requirements and business interactions with the government of Québec, as well as levy harsh penalties for non-compliance.

The measures, reported in Information Bulletin 2019-5, focus on uncovering and penalizing sham transactions and nominee agreements as well as on strengthening the current mandatory disclosure mechanism around certain tax transactions.

Sham Transactions

The government describes a sham as a complex transaction or series of transactions which have an element of deception aimed at misleading the tax authorities as to a taxpayer’s identity or the actual nature of a transaction or series of transactions.

Effective May 17, 2019, to better counter sham transactions, Revenu Québec will: add new penalties for advisors and promoters found to have initiated a sham transaction; extend the reassessment issuance period; and, block access to government contracts by those found guilty of conducting a sham transaction.

1. Penalties: Where a transaction, or series of transactions, has been proven to be a sham, the taxpayer will incur a penalty equal to the greater of $25,000 and, among other things, 50 percent of the tax otherwise payable had the sham not been transacted. An advisor or promoter of the sham will incur a penalty equal to 100 percent of the fees collected in respect of the sham transaction.
2. Prescription period: An additional three years will be added to the regular three- or four-year prescription periods currently available for reassessing a taxpayer who is party to a sham. This also includes any partnerships, corporations or related persons who are either party to the sham or associated with the taxpayer who is party to the sham. Furthermore, the prescription period otherwise applicable will be suspended when the taxpayer is subject to a formal judicial demand concerning unnamed persons and involving a sham.
3. Access to government contracts: Taxpayers who have been penalized in respect of a transaction or series of transactions involving a sham, as well as advisors or promotors penalized for the same reasons, will be registered with the “Autorité des Marchés Publics” (AMP) as enterprises ineligible for public contracts.

Nominee Agreements

A nominee arrangement is where a person acts on behalf of another person but gives the appearance of acting in one’s own name. These agreements are frequently used when dealing with real estate, either to allow of beneficial ownership or to facilitate corporate reorganizations and third-party transfers.

Effective May 17, 2019, the amendments to legislation will require disclosure by all parties to a nominee agreement, made as part of a transaction or series of transactions, to Revenu Québec. Disclosure must be made through a prescribed form and include: the date of the agreement; the identities of the parties to the agreement; a full description of the transactions to which the agreement relates (and the identity of any party with tax consequences as a result of the transactions); and any other information requested in the prescribed form.

The form must be filed with Revenu Québec no later than 90 days after the date on which the nominee agreement is concluded. Failure to file within the prescribed time period will result in all parties to the agreement being jointly liable for a penalty of $1,000, and an additional penalty of $100 per day, up to a maximum of $5,000, beginning on the second day of omission.

Nominee Agreements still effective on May 17, 2019 must be disclosed no later than September 16,

Mandatory Disclosure

In 2009, Quebec introduced measures to combat aggressive tax planning. These measures included a mandatory disclosure mechanism that applied to transactions for which the advisor requires confidentiality from the client; transactions for which the advisor’s remuneration is conditional on the occurrence of certain events; and transactions involving contractual coverage to protect the client from certain events. Disclosure to Revenu Québec was mandatory where one of these transactions resulted in a tax benefit of $25,000 or more to the taxpayer, or an impact on the income of a taxpayer of $100,000 or more.

The new bulletin announces amendments to legislation will further extend the scope of the mandatory disclosure mechanism in that the Minister of Revenue can specify transactions or series of transactions that must be Effective May 17, 2019, taxpayers will now need to disclose transactions that are “very similar, but not necessarily identical” to those publicly listed by Revenu Québec. Such disclosure must occur in prescribed form and include the following information:

• The identity of all parties involved in the prescribed transaction and the relationship between them during the course of the transaction;
• A full description of the facts of the prescribed transaction;
• A description of the tax consequences for the taxpayer resulting from the prescribed transaction; and
• Any other information requested in the prescribed form.

The information return must be filed with Revenu Québec by the later of (i) 60 days after the day the prescribed transaction begins, or (ii) 120 days after the day Revenu Québec first announces the prescribed transaction for which disclosure is mandatory. Failure to file may result in harsh penalties – up to $100,000, with an additional penalty equal to 50 percent of tax benefits received as a result of the prescribed transaction.

Information returns must also be filed by advisors and promoters of prescribed transactions; failure to file will result in a penalty of $10,000 with an additional $1,000 per day, to a maximum of $100,000, beginning on the second day of the failure to file. An additional penalty equal to 100 percent of the fees charged with respect to the undisclosed prescribed transaction will also be incurred.

For more information, contact your local MNP Tax