Law in Quebec

The new whistleblower program will pay whistleblowers rewards of up to 15 per cent of anything above $100,000 the Quebec taxman recovers in a tax fraud investigation. The exact percentage of the whistleblower’s reward will depend on the “quality and usefulness” of the information, according to a Revenue Quebec interpretation bulletin. The informant’s “level of cooperation” too will play a role but the provincial taxman does not stipulate, not even in its bulletin, what that entails. Neither does the Quebec tax authority explain what it means that it is offering a reward to “offset the potential personal, social and professional consequences of reporting another taxpayer.”

The program, which complements Canada Revenue Agency’s Offshore Tax Informant Program (OTIP), only deals with information involving anti-avoidance or shams. Anonymous whistleblowers will not be rewarded by the program. Instead, informants must identify themselves and if the information is deemed to be pertinent, the whistleblower must sign a contract to “define the parties’ respective commitments,” according to Revenue Quebec documentation. The reward will be paid only once amounts have been recovered and all deadlines for objection or appeal by the taxpayers have elapsed. The reward will be taxed.

Confidentiality, always a sticky point, is not promised. While the Quebec taxman says it will protect the informant’s identity, it does leave open the door for confidentiality to be breached. Revenue Quebec says there is a possibility that informants may be called to testify as a witness in legal proceedings. In such cases, the tax authority will notify the informant before deciding whether to continue the proceedings

Revenue Quebec already has an existing whistleblower program that allows taxpayers to report, even anonymously, a person or business they suspect is not meeting its tax obligations. But it does not offer financial incentives.

The new whistleblower program was launched as part of the “Tax Fairness Action Plan” tabled by Quebec’s minister of Finance, Carlos Leitao on November 2017. The action plan contains 14 actions that address tax havens, aggressive tax planning, transfer pricing and e-commerce with suppliers having no significant presence in Quebec.

“Offering a reward, in a well-structure framework, could be an efficient enticement to encourage people who have pertinent information to transmit it to Revenue Quebec,” said Leitao in a statement. “This information will allow it to act more efficiently to detect more rapidly tax avoidance strategies.”

Revenue Quebec’s expectations may have to be dampened. While the U.S. taxman’s whistleblowing program has led to recovery of “significant” unreported tax dollars and successful tax prosecutions, the CRA’s program has “to date had limited success,” points out David Chodikoff, a Toronto civil and criminal tax litigator with Miller Thomson LLP in an article published last year in the Canadian Tax Journal. But Chodikoff hastens to add that though it may too early in the program’s existence to pass judgment on its efficacy, the program faces unique challenges that Americans do not. Namely, the Canadian Charter of Rights and Freedoms.

“Once the predominant purpose of an inquiry by the CRA is the determination of penal liability, the taxpayer’s rights as secured by the Charter are fully engaged” thanks to sections 7 through 11 of the Charter, notes Chodikoff. And Charter challenges, he adds, are common in criminal tax matters.

The landmark ruling by the Supreme Court of Canada in the Jordan case further complicates matters due to the introduction of a numerical ceiling. “It is hard to imagine that the Jordan decision would not have an impact on the potential conduct of a tax prosecution in Canada,” said Chodikoff, Miller Thomson’s national leader in tax litigation.