Mandatory Disclosure for Aggressive Tax Planning (ATP) – Revenu Québec
The Aggressive Tax Planning Research and Integrity Branch of Revenu Québec has recently issued a statement to broaden measures to combat aggressive tax planning. The disclosure obligations will now be extended to specified transactions by the Minister of Revenue published on the Gazette Officielle du Québec, in addition to the listed transactions in Information Bulletin 2009-05.
A taxpayer must make a mandatory disclosure in the following situations:
- it has carried out a confidential transaction, a transaction with conditional remuneration or a transaction with contractual protection, or it is a member of a partnership which has carried out such a transaction; and
- it has carried out a transaction specified on the Gazette Officielle du Québec or is a member of a partnership that has carried out such a transaction (such as publication on March 17, 2021).
Likewise, an advisor or promoter must disclose the above transactions.
On failure to disclose, a penalty between $10,000 to $100,000 can be levied, based on the delay in days, along with an additional penalty equal to 50% of the tax benefit resulting from the relevant transaction or series of transactions.
As for advisors and promoter that would not comply to their mandatory disclosure obligation within the prescribed time limit, they would be exposed to similar penalty in range of $10,000 to $100,000, as well as a penalty equal to 100% of the consideration of the tax planning services.
To disclose a specified transaction, form TP-1079.DI-V “Mandatory or Preventive Disclosure of Tax Planning” should be completed, by the later of:
- 60 days after the obligation to disclose the specified transaction applies, or
- 120 days after the day the specified transactions are published in the Gazette (for the specified transactions published on March 17, 2021, this date shall be July 15, 2021).
Information Bulletin 2009-5
On October 15, 2009, the Québec Ministry of Finance announced in its Information Bulletin 2009-5, with applicable measures for fight against aggressive tax planning. These measures aim to counter tax planning which, although respecting the wording of the tax legislation, does not correspond to the object or the spirit of the law. The objective is to ensure that each must pay their fair share of taxes.
This information bulletin provided a detailed description of the measures announced to more effectively fight against aggressive tax planning schemes. These measures consist, briefly, of:
- compulsory disclosure of arrangements resulting in a tax benefit, that are covered by a confidentiality agreement between the taxpayer and his advisor or for which the remuneration of the advisor is conditional on or proportional to their success;
- a clarification to the notion of bona fide purpose for the purposes of the general anti-avoidance rule (GAAR), as a harmonization measure with the GAARs of other provinces;
- a three-year extension of the period of limitation where the GAAR applies, and the possibility of avoiding such extension through disclosure; and
- a regime of penalties applicable to taxpayers and promoters where the GAAR applies, which can be avoided through disclosure.
1. Mandatory Disclosure Mechanism
The mandatory disclosure obligations apply to confidential transactions resulting in a tax benefit of $25,000 or more with an impact on revenue of $100,000 or more, when the transactions involve a confidential agreement with an advisor or a conditional remuneration of the advisor.
Such obligations also apply the below specified transactions published in the Gazette Officielle du Québec (March 17, 2021, Vol. 153, No. 11):
- Avoidance of deemed disposal of trust property
- Payment to a non-treaty country
- Multiplication of the capital gains deduction
- Tax attribute trading
Failure to make mandatory disclosure within the required deadline will result in two consequences for the person for whom disclosure is required: imposition of a penalty; and suspension of the period of limitation regarding the undisclosed transaction.
The penalty relating to the failure to make mandatory disclosure within the stipulated deadline will not apply to the person who, according to the jurisprudence, successfully argues due diligence as a defence regarding such failure.
A person who omits to make mandatory disclosure within the stipulated deadline may avail himself of Revenu Québec’s voluntary disclosure policy and thus avoid imposition of a penalty for his omission, provided he satisfies the conditions of such policy.
2.General Anti-Avoidance Rule
The definition of avoidance transaction was clarified so that the following are not considered bona fide purposes:
- the obtaining of a tax benefit;
- the reduction, avoidance or deferral of tax or other amount payable on account of or regarding tax under a Québec law other than the Taxation Act, a law of another province of Canada or a federal law;
- the increase in a tax refund or other amount on account of or regarding tax under a Québec law other than the Taxation Act, a law of another province of Canada or a federal law;
- a combination of the purposes mentioned above.
A period of three years is added to the normal periods of limitation of three or four years for the application of the GAAR, in cases where the mandatory disclosure is not made.
Where the GAAR applies to an avoidance transaction, a taxpayer will incur a penalty equal to 25% of the amount of the tax benefit withdrawn pursuant to the application of the GAAR, in case the required disclosure is not made.
A promoter of such avoidance transaction will incur a penalty equal to 12.5% of all the amounts, each of which represents the consideration received. Promoter being the person who marketed or promoted the avoidance transaction or otherwise encouraged its growth.
The information to be provided on the prescribed form must consist of a complete and detailed description of the facts – not advice or other opinions – relating to the transaction or series of transactions as well as a statement of the tax consequences resulting from the transaction or series of transactions. In addition, the description of the facts and tax consequences resulting from the transaction or series of transactions must be sufficiently detailed to enable analysis of the transaction or series of transactions and an understanding of the resulting tax consequences.
For the purposes of the GAAR, preventive disclosure may at no time be linked to an admission or confession as to the application of this rule to the disclosed transaction.
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