Aggressive Tax Planning and Public Contracts: Are You Ready?

On 18 September 2019, the Government of Quebec introduced Bill No. 37, named the Act mainly to establish the Centre d'acquisitions gouvernementales et Infrastructures technologiques Québec ("Bill 37").

Essentially, Bill 37 aims to restructure government procurement in Quebec.

However, it also contains measures to sanction taxpayers who have been subject to a penalty regarding the general anti-avoidance rule in the Taxation Act, CQLR c. I-3 (Quebec). These measures also apply to tax advisors and professionals who have been subject to penalties for implementing transactions covered under the general anti-avoidance rule.

The penalty regime announced in Bill 37 is part of the Government of Quebec's ongoing effort to combat aggressive tax planning.

Aggressive Tax Avoidance and Listing in the RENA

Bill 37 provides for amendments to the Act respecting contracting by public bodies, CQLR c C-65.1 ("ACPB"), so that a business, upon which an "anti-avoidance tax" penalty related to a final assessment  [1]is levied, is recorded in the RENA, which is the register of enterprises ineligible for public contracts.

Ineligibility for public contracts pursuant to the ACPB lasts for a 5-year period from the date of the inscription in the RENA. It applies to all public contracts.

Under Bill 37, a business may also – in some cases – become ineligible for public contracts in the event of a breach of the general anti-avoidance rule by a "person related" to the business.

A person will be considered "related" to the business when, in the case of a legal person, they are a director, officer or shareholder and hold shares that confer at least 50% of the voting rights that can be exercised under any circumstance. Partners of a general partnership, limited partnership or joint venture, as well as its directors, will also be considered "related persons" and any breach by the latter of the general anti-avoidance rule may lead to the registration of their business in the RENA. In this regard, it is important to know that a breach of the general anti-avoidance rule by a "related" person in the course of his or her duties in the business will be the most likely to tarnish the business itself.

Aggressive Tax Avoidance and Authorisation by the AMP

With the amendments to the ACPB announced by Bill 37, breaches of the general anti-avoidance rule may also be taken into account by the Autorité des marchés publics ("AMP") when issuing or renewing a prior authorisation to contract with a public body. In this regard, it is worth noting that this authorisation is mandatory for certain public contracts, namely construction or public-private partnership contracts or subcontracts of $5M or more, service contracts or subcontracts of $1M or more, numerous contracts with the City of Montreal, as well as contracts for the supply of cannabis to the Société québécoise du cannabis.

The new measures under Bill 37 will apply to the assessment of a penalty related to the general anti-avoidance rule resulting from an audit or investigation of an avoidance transaction by Revenu Québec or the Canada Revenue Agency that began after the 59^th day following the assent of Bill 37.

Aggressive Tax Avoidance and Mitigation Measures: Late Preventive Disclosure

In order to avoid penalties related to the general anti-avoidance rule, registration in the RENA, as well as the refusal of prior authorisation to contract with a public body, Bill 37 provides for the possibility of submitting a late preventive disclosure to Revenu Québec. Late preventive disclosures can be made as of now, as has been the case since Bill 37 was introduced on 18 September 2019. Taxpayers wishing to take advantage of this measure will have until the 60th day following the assent date of Bill 37 to do so by submitting the completed form entitled TP-1079.DI - Mandatory or Preventive Disclosure of Tax Planning.

However, it should be noted that a late preventive disclosure will not be accepted in the event that a tax transaction audit by Revenu Québec or the Canada Revenue Agency has already been initiated.

 

[1] Sections 1079.13.1 and 1079.13.2 of the Taxation Act, CQLR c. I-3.