In the past few years, the Agence du revenu du Québec (“ARQ”) has acted aggressively towards any taxpayers whom it suspects of being involved in a “false invoicing scheme”. However, a crack seems to have appeared in the position generally held by the ARQ on this issue as a result of a recent decision by the Court of Québec in the case of Système intérieur GPBR Inc.
The facts of this case are typical of files of this nature: a building contractor was denied input tax refunds (“ITRs”) it had claimed on the grounds that it did not meet the legal requirements for obtaining them, and because some of its subcontractors turned out to be “suppliers of false invoices”.
Firstly, the Court noted in its judgment that certain documentary requirements set out in the law and regulations must be complied with in order to validly claim ITRs, including, among other things, the obligation to obtain the name of the supplier or intermediary, or the name under which it is doing business, the QST registration number assigned to the supplier or intermediary, the date of the invoice, a sufficient description to identify each supply, etc.
The ARQ maintained that only the names of the suppliers of services having actually performed the work for which ITRs were claimed could appear on the invoices. This argument was dismissed by the Court because the regulatory provisions expressly provide that the name of an intermediary may appear thereon.
In addition, the ARQ claimed that a taxpayer wishing to claim ITRs was subject to numerous additional obligations, in addition to complying with the prescribed regulatory requirements. For example, according to the ARQ, the taxpayer had to confirm the legal existence of the subcontractors in the Enterprise Register of Quebec, verify the validity of their license issued by the Régie du bâtiment du Québec, or obtain data from the Commission de la construction du Québec and the Commission de la santé et de la sécurité du travail du Québec on the subcontractors’ workforce.
The Court did not accept this claim by the ARQ. Indeed, taxpayers have a right to strictly rely on the statutory provisions in conducting their tax affairs, and it is not the courts’ role to create new rules in this area. Therefore, the courts must not impose requirements relating to ITR claims that are not provided for in the legislation or regulations.
Thus, the Court concluded that the taxpayer had proven its right to the ITRs claimed because it had met the documentary requirements, the services billed for had been truly rendered, and its right had not been affected by the fact that some of its subcontractors subsequently turned out to be “suppliers of false invoices”. On this last point, the Court indicated that the ARQ had adduced no evidence of collusion by the taxpayer with its subcontractors with a view to benefit from this “scheme”. The ARQ has already announced its decision to appeal this case, noting that it does not intend to change the way in which it handles matters of “false invoices”. It therefore appears that the ARQ does not seem to have heard the plea for caution by the Court, which, moreover, noted that a “conviction by association” can have disastrous consequences for a business and its principals. However, this does not mean that taxpayers should necessarily refrain from contesting GST or QST assessments issued by the ARQ in similar circumstances.