MONTREAL - When Revenue Quebec raided the offices of Montreal gold bullion dealer Kitco Metals Inc. in June, it alleged that a huge tax scam was under way.
The allegation that the company had evaded GST and QST payments surprised many people in the gold trading industry, where Kitco had been a well-regarded dealer since its founding in 1977.
But Revenue Quebec’s actions didn’t surprise accountants and tax lawyers who deal with the department on a regular basis.
Over the past 18 months, they say, the Quebec government has been much more aggressive in trying to enforce sales tax collection – even to the extent of holding companies liable if their suppliers don’t remit what they owe.
In the Kitco case, Revenue Quebec officials allege that suppliers who sold gold to Kitco didn’t make sales tax remittances, even though Kitco went ahead and claimed the input tax credits on those transactions.
The assessment, being contested by the company’s lawyers, is seen as a crucial test case on whether the government is going too far. Kitco has been hit with more than $300 million in assessments and argues it can’t be held responsible for the actions of its suppliers.
This is a growing problem that’s beginning to infect the investment climate in Quebec, says one Montreal tax practitioner who didn’t want his name used. Potential investors are scared off by the prospect of dealing with the tax administration.
“Right now companies are being assessed hundreds of millions of dollars and it’s not something they can control,” he said. Revenue Quebec is putting an “unreasonable burden” on companies to ensure that a supplier, or even a supplier to a supplier who might be three or four links down the chain, has remitted sales tax.
“They’re using the argument that you should have known the type of people you’re dealing with. But there’s no way of knowing.”
Valerie Savard, a Revenue Quebec spokesperson, said there hasn’t necessarily been a change in policy and that each case is treated on its own merits.
“If we are asking for a company to pay a subcontractor’s tax bill it’s because we have a legal basis to do so.”
But the more aggressive stance appears to be a direct reflection of the government’s deficit problem. Revenue Quebec has been ordered to crack down on tax avoidance and it appears to be ensnaring innocent people in the process.
They have to go to court to defend themselves, but that process can take three or four years.
“The problem is what when you get your tax bill for GST and TVQ, you don’t get to argue first and pay later,” said Aaron Rodgers, a tax litigation specialist at Miller Thomson Pouliot...
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