More than four years after the federal government introduced an offshore tax evasion tip line to fight offshore tax evasion and aggressive tax avoidance, Quebec’s tax authority is following suit by launching a whistleblower program that will offer monetary rewards.
The Quebec Court of Appeal has ruled the province’s tax authority can issue demand letters and request the disclosure of financial information from third parties outside the province to determine whether a taxpayer is subject to the province’s tax laws.
Why it matters: It is widely expected that Revenue Quebec will now issue more demand letters to third parties outside the province even though questions remain over the scope of the ruling.
An action plan unveiled by Revenue Quebec to improve its dealings with taxpayers after the Quebec ombudsman accused the provincial tax department of becoming more intractable and less respectful is viewed with cautious optimism by business and tax professionals.
The action plan was ordered by Quebec Finance Minister Carlos Leitão to remedy an “unacceptable situation” following a scathing report by Quebec ombudsman Raymonde Saint-Germain who for the second year in a row found that Revenue Quebec frequently failed to apply the principles of natural justice or fundamental rules of procedural fairness, rigidly interpreted fiscal legislation despite being aware of jurisprudence contrary to its position, and provoked needless court action to resolve tax disputes with taxpayers.
Revenue Quebec was ordered to pay $2.4 million, including $1 million in punitive damages, to a Montreal business after the Quebec Court of Appeal found that the provincial fiscal authority abused its powers and acted maliciously and in bad faith.
In a decision that sternly rebukes the provincial tax authority for abusing its “extraordinary powers,” the appeal court ruling held that Revenue Quebec owes a general duty of care and good faith to taxpayers as well as an “obligation to compensate” taxpayers who were the victims of wrongful conduct, according to tax lawyers.
A blistering report by Quebec ombudsman recently accused Revenue Quebec of becoming more intransigent and less respectful report towards taxpayers, prompting an immediate reaction from the provincial finance minister who ordered the tax department to come up with a “concrete action plan” to remedy the “unacceptable” situation.
Revenue Quebec “frequently failed” to apply the principles of natural justice or the fundamental rules of procedural fairness while recovering tax dollars, rigidly interpreted fiscal laws which often resulted in needless court action to resolve tax disputes with taxpayers, and “employed inadequate, and even abusive,” auditing methods, according to the latest report by the Protecteur du citoyen, the second year in a row that the taxman was castigated by the ombudsman.
A targeted program launched by Revenue Quebec to recover monies from employers and employees in the construction industry recouped nearly $1.2 billion in the past three fiscal years but critics say that the tax authority could recover more monies and curb black market activities more efficiently by introducing a series of easy-to-implement measures.
Despite numerous initiatives introduced over the past couple of years by the Quebec government to thwart tax evasion, money laundering, collusion and corruption, particularly in the construction industry, “tax losses remain high,” according to the 2015-16 provincial budget. The taxman and the Ministry of Finance estimate that the government loses $1.5 billion annually due to tax evasion in the construction industry alone, the sector where tax losses are the highest.
Quebec’s tax authorities can issue demand letters and request the disclosure of financial information from third parties located outside of the province to determine whether the taxpayer is subject to the province’s tax laws, ruled Quebec Superior Court.
The ruling illustrates the daunting challenge taxpayers face when trying to quash formal demand letters and requests for information by tax authorities, particularly when they are trying to ascertain the residency of corporations or trusts in order to establish where it makes its management decisions, according to tax experts.
“The courts have always been reluctant to cancel or quash demand letters or requests for information, and one of the reasons is that it is not a collection measure per se but rather it is part of an investigation conducted by tax authorities,” noted Étienne Gadbois, a Montreal tax lawyer.
Yacine Agnaou is one of a handful of Canadian lawyers who took on Quebec tax authorities and plead a case so successfully that now others are trying to follow suit. Now Agnaou is immersed in another legal battle against another government department. He is trying to force the federal whistleblower watchdog to investigate his allegations of wrongdoing against the Public Prosecution Service of Canada.
The Tax Court of Canada, in yet another legal blow to Quebec’s tax authorities, chastised Revenue Quebec for expecting business to act as a “taxation police.”
A Montreal businessman forced to shut down his business after Revenue Quebec mishandled his case was awarded nearly $4 million following a ruling.
Quebec inches its way towards doctrine of rectification.