The 2018 Québec Budget was tabled by Finance Minister Carlos J. Leitão on March 27, 2018, and includes important measures meant to address certain issues regarding the Québec Sales Tax (the “QST”) scheme as it is currently enacted, including measures designed to expand the QST base to digital business in Québec.
The Current QST Scheme
Conceptually, the QST applies to goods and services used or consumed in Québec, regardless of their origin. The applicable place of supply rules will vary according to the type of property or services supplied but one constant remains: the principle is to apply the QST to supplies of goods and services that a purchaser located in Québec receives and uses in Québec. Currently, non-resident suppliers only have the obligation to register for QST purposes and charge and collect QST on supplies made in Québec to the extent they are considered to be “carrying on a business” in Québec.
The current QST system was largely enacted in 1992 and did not envision the digital economy and supplies made from abroad by digital means. When non-resident suppliers do not have a sufficient presence in Québec to be considered to be carrying on a business in Québec, these non-resident suppliers are not required to register, collect and remit the QST. This problem became of particular concern in Québec recently, in light of the growing importance of the digital economy. It is therefore now common practice for large foreign corporations to make important volumes of supplies in Québec through digital means without being registered for QST purposes and without charging and collecting QST.
As currently enacted, an Act Respecting the Québec Sales Tax prescribes that it is the purchaser located in Québec who has the obligation to self-assess the QST on incorporeal movable property and services acquired from abroad and on goods and services imported from other Canadian provinces. Very few Québec purchasers effectively self-assess and ultimately pay the QST on such purchases.
A similar problem arises in connection with corporeal movable property imported into Québec from another Canadian province. Canadian suppliers who make such supplies in Québec may not be required to register for QST purposes if they do not have a significant presence in Québec. In these situations, the suppliers will not collect the QST and the purchasers are required to self-assess and remit the QST on these purchases.
The 2018 Québec Budget provides that the QST system will be modified to better take into account the digital economy and address the issues explained above.
Non-resident suppliers will have the obligation to register with Revenue Québec, under a new specified registration system, for the purpose of collecting and remitting the QST applicable to their taxable supplies of incorporeal movable property and services made in Québec to specified Québec consumers. The expression "specified Québec consumers" will refer to a person who is not registered for QST purposes and whose usual place of residence is located in Québec.
Moreover, in the case of suppliers who are non-residents of Québec but are in another Canadian province, this registration requirement will also apply to the collection and remittance of the QST applicable to taxable supplies of corporeal movable property made in Québec to specified Québec consumers. This is meant to address situations where Canadian suppliers who did not have the obligation to register for QST purposes supplied corporeal movable property to a Québec purchaser who failed to self-assess and remit the QST in connection with such purchase.
This registration requirement will also apply to digital property and services distribution platforms with respect to taxable supplies of incorporeal movable property or services received by specified Québec consumers, where these digital platforms control the key elements of transactions with specified Québec consumers, including billing, transaction terms and conditions, and delivery terms. In general, a digital platform will refer to a platform providing services to non-resident suppliers (e.g., application stores or websites) through which non-resident suppliers will make taxable supplies of incorporeal movable property or of services to specified Québec consumers.
The concerning non-resident suppliers located outside Canada will come into effect on January 1st, 2019 and the measures concerning non-resident suppliers located in Canada will come into effect on September 1st, 2019.
It will be interesting to monitor the reaction of the federal government, particularly considering the Comprehensive Integrated Tax Coordination Agreement Between the Government of Canada and the Government of Québec (“Canada-Québec CITCA”) and the constitutional aspects of the issue. Of particular interest will be whether the federal government perceives the new measures as a material breach of the Canada-Québec CITCA and if it will seek compensation or consider terminating the Canada-Québec CITCA or rather if it will consider adopting similar measures for GST/HST purposes.