TEI Montreal chapter - Ministry of Revenue of Quebec liaison meetings.

On February 6, 1997, members of TEI's Montreal Chapter were briefed on the results of recent liaison efforts between the Institute and the Ministry of Revenue of Quebec. The report, which was made during the chapter's Annual Quebec Conference, was presented by Andre Brochu, Assistant Deputy Minister-Legislation Branch, Ministry of Revenue of Quebec; Yves Magnan, chair of the Montreal Chapter Income Tax Committee, and Michel Ducharme, chair of the Montreal Chapter Sales Tax Committee. Reprinted below is the translation of the summary which was distributed to the conference participants.

1. Audits

A. Audit Protocol and

Real-Time Audit

The Ministry of Revenue of Quebec (MRQ) has observed the developments (pros and cons) in the procedure used at Revenue Canada and plans further evaluations before implementing similar programs. Since some corporations have already signed a protocol with Revenue Canada, we have asked the MRQ to examine the possibility of endorsing the protocol on a case-by-case basis for the companies that want it. If the occasion arises, the MRQ will inform us of the conditions and of the procedure to be used.

Discussions are under way between the MRQ and Revenue Canada with regard to the operating procedure for the audit protocol and with respect to the experiences encountered up to this point. One must, among other things, take into account the fact that the objectives and extent of the audits undertaken by each organization can vary according to the cases and thus avoid restricting an auditor's autonomy. Also, the MRQ is interested in conducting shorter and less expensive audits. A directive has been issued to this effect. The audits will primarily concern:

* Provincial allocation * Capital tax * Taxable benefits * Source deductions

Lastly, in the near future, taxpayers should see greater open-mindedness on the part of auditors with respect to discussions concerning audits.

B. GST/QST Audits

With few exceptions, the MRQ always conducts combined GST/QST audits. On average, the comprehensive audits take 10 to 20 percent more time than the GST audits carried out by Revenue Canada in the rest of the country. However, they cover two taxes, not one. The amount of time spent on Quebec taxpayers' premises is generally similar to the amount spent on the premises of taxpayers audited by Revenue Canada. MRQ auditors receive the same training as Revenue Canada auditors. They also have access to the same documents and information as Revenue Canada auditors.

The main items targeted are as follows:

* Input tax credits/input tax refunds too high * Taxes collected, but not remitted (undeclared sales) * Uncollected taxes (especially transactions between affiliated companies) * Taxable benefits

2. MRQ Reluctance to Accept Notices of Waiver From a Taxpayer

The procedure used is in accordance with the structure of the act (Section 1010), which grants the MRQ (not the taxpayer) the prerogative of exercising its discretion to reassess or not reassess a taxpayer. Thus, the option of initiating the administrative procedure is that of the MRQ. The MRQ's concern is that the discretion to reassess could be contested before the courts if taxpayers were able to initiate the process (see, for example, Ouellet and Vezeau, which concern the MRQ's discretionary power to waive interest charges and penalties under Section 94.1 of An Act respecting the Minister of Revenue).

Although there are certain directives concerning the procedure to be used and the wording of a notice of waiver, the MRQ believes that its representatives should be flexible enough with regard to the wording, especially when it is a matter of describing the facts and the resulting tax consequences.

3. Compliance Procedure for Expenses Incurred for Real Estate Assets

During the meeting, TEI reminded the MRQ's representatives that this measure causes several problems for large companies. The information must be put together manually, and each taxpayer seems to send it to the MRQ in a different form. Also, it seems that some taxpayers are not complying with this measure. TEI's representatives also asked the MRQ to clarify the purpose of this measure.

The MRQ said that the purpose of the measure is to enable it to gather information that would be useful in its fight against the underground economy. It is also aimed at "discouraging" Quebec companies from using the services of contractors who do clandestine work. The MRQ told us that the information has made it possible to conduct a study on taxpayers' behavior in the field. The conclusions drawn will define the desirable administrative conclusions, e.g., the use in the tax information database presently being developed. Administrative adjustments are being considered to rationalize the information and increase its value for effective use in the fight against tax evasion.

TEI proposed to the MRQ that the two organizations meet with Qudbec's Department of Finance to inform it of the problems that this measure is causing for TEI members and the MRQ. TEI also asked the MRQ if it would be possible to modify the measure to make it easier for both our members and the MRQ to administer. Some of the suggestions include:

* Asking the Department to review the accounts payable on the premises of certain taxpayers in order to assess the measure's usefulness and the possible alternatives.

* Modifying the measure in such a way that companies would only submit the names of suppliers that are not registered for GST purposes.

* Considering the measure's objectives and the problem of managing the information, with regard to which the parties agree, the items discussed were submitted to the Deputy Minister. It was agreed to continue discussions on this matter with TEI in 1997.

4. Interest Calculation

Taxpayers have the perception that the interest calculation is wrong on a regular basis and that obtaining details of the calculation from the MRQ is a very long and difficult process.

The MRQ said that the ability of the computerized information processing system is limited (it is an old system) and that it is therefore not feasible to add sophisticated interest-calculation applications to it. Projects are being considered for updating this application in the coming years, depending on the funds the government has available. The MRQ, however, is still convinced that the calculations made by computer are accurate. The complaints and requests received concern the quantity (details) of information more often than its quality. The MRQ is showing itself to be open to examining the problems that will be brought to its attention. Companies are invited to submit them by contacting the directors of Cotisation des corporations (Corporate Assessments) in Montreal (Place Desjardins) and Quebec City (rue Marly).

We asked the MRQ to consider sending a summary statement of account which, while not containing the details of the interest calculation, would indicate the amounts and dates taken into account. The MRQ is taking this request into consideration.

5. Electronic Payments and Refunds

TEI has been invited to participate on the MRQ'S advisory committee on this matter. The last meeting was held in Montreal on January 23. The following items were discussed:

A. Internet

In mid-January, the MRQ's Internet address was changed to make it compatible with the addresses of the other Quebec government departments. "Up-to-date" deduction-at-source tables have been available since early December.

The Department plans to allow companies to consult certain data concerning them in the MRQ's files. The project is scheduled for the summer of 1997.

The MRQ will make its Info-Refund accessible again on the Internet. This service will also be made accessible on UBI in its pilot site, in the Saguenay region, on or around May 1.

B. EDI Payments

The MRQ now allows most payments from taxpayers and agents to be made by EDI. For now, most of the payments received concern deductions at source. However, this service is also available for the payment of corporate taxes, GST and QST, and payments from individuals. The MRQ plans to increase the use of this method of payment. Yvan-Denis Veilleux will give a presentation to you on this topic later today.

C. Automated Employer

Remittance Reconciliation

The purpose of this project is to replace the present deductions at source processing system, an old system from 1972 which takes four to six weeks before a change is made and confirmed to the taxpayer.

The new system presently under consideration will enable agents to download, via the Internet, a software program for checking the accuracy of the information (social insurance numbers, discrepancies, under-contributions, etc.) in their employer file. They will thus be able to use the software to print out their employees' Releve 1's and send the summary Releves to the MRQ. Also, they will have access, via the Internet, to all the information concerning their deductions at source accounts at the MRQ. Michel Charbonneau is in charge of this project.

6. Compensation

This matter was briefly discussed, and the MRQ's representatives confirmed to us that there were no changes to the compensation procedure. However, since this procedure is not totally clear to our members, the MRQ has agreed to make a presentation to us on this topic today.

7. Electronic Filing of Corporate Tax Returns

Resource persons, for these projects include Onil Bolduc, Director of Corporate Assessments-Quebec, and Jean-Marie St-Gelais, Director of Corporate Assessments-Montreal and head of the project at the General Directorate of Corporations.

The revision of Form CO-17 is in its very early stages. The revised form will be submitted to TEI and other organizations for consultation purposes. This should be done in 1997 so that the form will be in effect starting in 1998.

The project concerning the electronic filing of corporate income tax returns is well under way. The MRQ is considering using the same technology used for the electronic filing of personal tax returns (EFILE-TP1). The project's implementation is slated for May 1998. As for the filing of Selected Financial Data (SFD), the MRQ's proposal is basically to harmonize with Revenue Canada with regard to both the form and timetable.

The MRQ held a first meeting with TEI and other organizations in January of this year. There will be other consultation meetings before the project comes into effect, which is scheduled for 1998. The current proposal is to gradually implement this new requirement. However, it has not yet been determined who will be affected first.

8. Notice of Objection

Concerning a Designated

Assessment

The MRQ is presently working with Revenue Canada on the possibility of exchanging information before issuing an assessment or notice of waiver.

Unlike the situation in Ontario, it is not possible in Quebec to avoid issuing a notice of objection to a designated assessment (i.e., which ensues from an audit conducted by Revenue Canada). However, the MRQ informs us that its current policy is to include, with assessments issued after obtaining information from Revenue Canada, a letter of commitment concerning the changes to be made by Revenue Canada following the objection, subject to Quebec specifications.

As for cases where Quebec specifications are such that the modifications would be different or would not be made, the MRQ's policy is to accept notices of objections on this particular point despite the passing of the deadline, given the commitment the MRQ made in the letter sent to taxpayers placed in this situation. Interpretation Bulletin ADM.5 dated August 30, 1996 confirms this commitment. The MRQ also told us that for the past few months, it has been able to issue a detailed statement of account of the activities posted on agents' QST accounts. This statement is available upon request from the General Directorate of Agents.

Ministry of Revenue of Quebec Delegation

Andre Brochu, Assistant Deputy Minister-Legislation Branch Andre Gingras, Acting Assistant Deputy Minister & Assistant General Director-Regional Audit Branch-Quebec Michel Charbonneau, Director of Agents-Regional Branch-Quebec Yves Racicol, Director of Consumption Tax-Accounting Branch-Montreal (Agent Directorate) Roger Ouellet, Analyst Administration Directorate Pierre Dupont, Assistant to the Assistant Deputy Minister-Legislation Branch Yves Bannon, Assistant to the Assistant Deputy Minister-Taxpayer Directorate Marc Samson. Legal Advisor, Legislation Branch

Tax Executives Institute (Montreal Chapter) Delegation

Yves Magnan, Laurentian Bank of Canada Michel Ducharme, Royal Bank of Canada Raoul J. Gratton, Jr., Alcan Aluminium Limited Daniel P. Legault, Canadian National Railway Co. Timothy C. Morris, Royal Bank of Canada Peter Sorenti, Ivaco Inc.

the Liaison Committee is interested in learning of other Quebec tax issues and problems faced by TEI members. Should there be any issue that you feel the Liaison Committee should discuss with the MRQ, please contact either YVES MAGNAN, Vice-President-Taxation, Laurentian Bank of Canada, 1981 McGill College Avenue, 14th floor, Suite 1465, Montreal, Quebec H3A 3K3, Canada, Tel.: [phone], Fax: [phone], or MICHEL DUCHARME, Manager, Sales Tax, Royal Bank of Canada, 1 Place Ville Marie, 13th Floor East, Montreal, Quebec H3C 3A3, Canada, Tel.: [phone], Fax: [phone], E-mail: MDUCHARME@RoyalBank. E-mail.com.