Comments to Quebec government on proposed changes relating to aggressive tax planning.

• Author: Bergen, Rodney C.

March 31, 2009

In the following March 31, 2009, letter to the Quebec Ministry of Finance, TEI President Vincent Alicandri urged Quebec to modify its proposals for "mandatory early disclosure" and "preventive disclosure" of aggressive tax planning schemes (planifications fiscales agressives). TEI's comments were prepared under the aegis of TEI's Canadian Income Tax Committee whose chair is Rod Bergen of The Jim Pattison Group. Contributing substantially to the development of TEI's comments was Steve Perron of CGI, Inc. Also contributing to the comments were Denise Deriger of Pratt & Whitney Canada Corporation; Michel Ethier of Quebecor, Inc.; Chantale Lauzon of Aveos Fleet Performance, Inc.; Lucie O'Dowd of Standard Life Assurance Co.; Serge Vanier of Imperial Tobacco Canada Limited; and Louise Vignoul of Paladin Labs, Inc. TEI Tax Counsel Jeffery P. Rasmussen served as staff liaison on this project. The comments were submitted in French and English. (Mr. Perron also served as the translator of the comments.) The French version is available on TEI's website at www.tei.org.

On January 30, 2009, the government of Quebec launched a consultation project on aggressive tax planning (ATP). The consultation document (1) describes the scope of the ATP problem in Quebec and Canada generally, outlines current legislative and administrative tools to curb over aggressive and abusive transactions, and proposes additional steps to enhance the Quebec government's ability to deter, detect, and challenge such transactions. On behalf of Tax Executives Institute (TEI), I am pleased to provide the following comments.

Background

Tax Executives Institute is the preeminent association of business tax executives. The Institute's 7,000 professionals manage the tax affairs of 3,200 of the leading companies in Canada, the United States, Europe, and Asia and must contend daily with the planning and compliance aspects of Canada's business tax laws. Canadians constitute 10 percent of TEI's membership, with our Canadian members belonging to chapters in Montreal, Toronto, Calgary and Vancouver, which together make up one of our nine geographic regions. Our non-Canadian members (including those in Europe and Asia) work for companies with substantial activities in Quebec and Canada generally. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling and retailing, real estate, transportation, financial services, telecommunications and natural resources (including timber and integrated oil companies). TEI is concerned with issues of tax policy and administration and is dedicated to working with government agencies, to reduce the costs and burdens of tax compliance and administration to our common benefit.

The comments set forth in this letter reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency. We are convinced that the ad ministration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitable operation of the tax system. In furtherance of this principle, TEI supports efforts to improve the tax laws and their administration at all levels of government.

Introduction

During the past decade, provincial and federal Canadian governments have identified and challenged ATP and ATP schemes and transactions. (2) In some cases, the Quebec government has interdicted specific transactions by implementing new legislation; in other cases, the Ministere du Revenu du Quebec (MRQ) has clarified the interpretation and application of Quebec's tax legislation to specific transactions. TEI supports the government's objective of curbing or deterring illegitimate transactions, which can undermine confidence in the fairness and integrity of the tax system, reduce government revenues, and ultimately shift the tax burden to already compliant taxpayers. In addition, we applaud the government's decision to launch a consultation process rather than hastily adopt misguided anti-abuse provisions.

Regrettably, the extant provincial and federal tax laws engender substantial confusion about the line between acceptable and aggressive tax planning, especially for large companies that engage in numerous transactions. Hence, it is essential that the tax laws be clear, consistent, predictable, and fair in order to ensure that taxpayers can manage their businesses intelligently and assess their tax liabilities in accordance with the government's tax policy. Regrettably, some of the proposals in the consultation document will impede legitimate commercial transactions and arrangements. As a result, we offer a number of suggestions to improve the government's proposals.

Creation of a Central Audit Unit for Detecting and Deterring ATP

The 2008-2009 Quebec Budget Speech announced the implementation of a specialized unit within MRQ to combat ATP. By establishing such a unit, MRQ auditors will have additional resources to rapidly analyze various transactions and develop expertise to distinguish ATP schemes from legitimate tax planning. TEI believes that the creation of a specialized unit within MRQ will assist the government in combating ATP. In addition, the ATP unit can work with similar "tax avoidance" audit groups at the federal and provincial levels, thereby promoting interjurisdictional cooperation and enhancing coordinated efforts to identify ATP, especially those involving cross-border transactions. If the unit is properly implemented and administered, the tax audits of large corporations...