Reporting of tax account activity in Quebec.

On June 7, 1996, Tax Executives Institute submitted the following comments to Georges Homsy, Director of the Quebec Ministry of Revenue in Toronto, concerning the reporting of tax account activity for provincial tax purposes. The comments were prepared under the aegis of the Institute's Toronto Chapter and, after being ratified by the Montreal Chapter and approved by TEI's Executive Committee, were signed by Toronto Chapter President Ann Zegarchak. Pierre M. Bocti of Hewlett-Packard Canada, chair of the Institute's Canadian Commodity Tax Committee; Vincent Alicandri of Xerox Canada Limited, TEI's Vice President for Canadian Affairs; and Robert G. Westlake of General Electric Canada Inc., materially contributed to the development of the Institute's submission.

During a recent meeting of the Toronto Chapter of Tax Executives Institute, Inc., several questions were posed relating to the administration of the Quebec Sales Tax (QST). In the course of the discussion, you invited the Institute to submit a letter describing its concerns and proposing a solution. We are pleased to respond to that invitation.

Background

Tax Executives Institute, Inc. is an international organization of approximately 5,000 professionals who are responsible -- in an executive, administrative, or managerial capacity -- for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,700 of the leading corporations in Canada and the United States.

Canadians constitute approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial; natural resources (including timber and integrated oil companies); and telecommunications. The comments set forth in this submission reflect the views of the Institute as a whole (and have been approved by the Institute's Executive Committee), but more particularly those of our Canadian constituency.

Description of the Issue

Business taxpayers in Quebec are responsible for a plethora of taxes including Quebec Sales Tax (QST); corporate capital, property, or income taxes; excise taxes; payroll taxes; social insurance taxes; and employee withholding taxes. The Ministere du Revenu Quebec (MRQ) provides separate remittance forms in respect of each separate tax for which business taxpayers are liable. In addition, MRQ assigns a different account number for the taxpayer for each type of tax to be remitted. The pre-printed remittance forms for most taxes, in particular QST, contain limited information identifying the taxpayer, the tax account, and a blank space for reporting the amount of tax to be remitted for the reporting period. The forms do not summarize activity in the taxpayer's accounts or reflect the account balances.

Tax remittances are occasionally processed late as a result of mistakes by either the taxpayer or the government. Resolving issues associated with tardily processed remittances is sometimes problematic. Owing to the division of duties in larger companies, the personnel responsible for bank-account reconciliations are usually different from those responsible for authorizing and making tax payments. As a result, the tax department personnel generally assume that, where a remittance is initiated timely, it will be received and processed by MRQ in the normal course. A company bank account reconciliation clerk who becomes aware that a cheque to MRQ has not been promptly processed would not be authorized to address problems with MRQ; more important, the clerk may not even recognize the significance of a late-processed payment by MRQ and may not communicate with the appropriate tax department personnel. The likelihood that a communication problem will hinder resolution of a delay in payments is heightened where the bank account reconciliation is outsourced to a different company. Concededly, taxpayers should be encouraged to improve their internal control and communications. Control procedures, however, are not fail safe. Moreover, whether the fault for late processing of the payment lies with the taxpayer or the government, the missing link remains the same: There is an essential need for routine communication between MRQ and the company's tax professional to ascertain the proper disposition of all payments.

Where a tax payment is processed late, MRQ will usually issue an assessment -- whether properly or not -- for interest and penalties in respect of the "late" payment. In addition, MRQ will sometimes transfer payments made for one type of tax or tax period as an offset against a tax liability or period different from the one intended by the taxpayer. Under MRQ's current reporting system, unilateral transfers of funds among tax accounts by MRQ normally come to the taxpayer's attention only upon issuance of an assessment.

When an assessment is issued, the taxpayer is able to undertake necessary steps to address a problem. Unfortunately, such assessments are often issued several months after an offset or transfer is entered into the taxpayer's accounts. In addition to the transfer of the payment, interest or penalty charges may be posted to one or more of the taxpayer's accounts as a result of the transfer. Since numerous transactions involving multiple tax accounts and periods may be processed by MRQ in the interim before the responsible person at the taxpayer is apprised of a problem (let alone afforded the opportunity to address and resolve it), an isolated late payment by a taxpayer, an erroneous misposting by MRQ, or even a legitimate transfer between accounts by MRQ may cause several of a taxpayer's MRQ accounts to remain out of balance for years. The "domino" effect from a single, unilateral transfer by MRQ can be profound.

Proposal

We recommend that MRQ revise its reporting in respect of taxpayer's tax accounts summarized on the remittance forms to include: the opening balance in the taxpayer's account, payments received on account, the amount of tax assessed for the period, interest assessed, penalty assessed, and the closing account balance relating to the preceding reporting period on the remittance forms for the current period. Six provinces currently issue sales tax return reports that summarize the activity in the taxpayer's sales tax liability accounts. The information supplied to the taxpayer on the remittance advice for the reporting period by these provinces reflects the opening balance in the taxpayer's account, payments received on account, the amount of tax assessed for the period, interest assessed, penalty assessed, and the closing account balance. Informal discussions with officials confirm that similar information on the QST accounts of taxpayers is currently available in MRQ's computer system.

We believe that adopting our proposal would benefit the government and taxpayers alike by substantially reducing the detailed, time-consuming account reconciliations that currently take place. An up-to-date, periodic summary of a taxpayer's tax account activity and account balances will permit taxpayers to identify and verify the propriety of transactions flowing through its accounts in a more timely fashion. At a minimum, MRQ should report all unilateral transfers promptly in order to permit taxpayers to respond more quickly to unexpected transactions flowing through the assigned MRQ account.

Conclusion

The Toronto Chapter of Tax Executives Institute appreciates this opportunity to provide its comments concerning the reporting of tax account activity by the Ministere du Revenu Quebec. Should you have any questions about this submission, please do not hesitate to call either Pierre M. Bocti, chair of the Institute's Canadian Commodity Tax Committee, at [phone], or [Ann Zegarchuk] at [phone].