In March of 2018, the province of Quebec introduced a proposal to vastly expand the requirements for non–residents of Quebec to collect and remit the Quebec Sales Tax (“QST”) on sales of services and intangible property. Although no draft legislation has yet been released, these proposals would require both Canadian and non–Canadian suppliers of intangible property or services, whether delivered through a digital platform or not, to register as a collector of the Quebec Sales Tax, and to collect, report and remit such tax on all such sales to unregistered Quebec residents.
These proposals follow the OECD recommendations designed to address the tax challenges associated with the digital economy globally, and appear to be directed primarily at B2C transactions, such that only non–residents of Quebec that make sales to unregistered Quebec resident consumers will be subjected to these new rules. Further, Quebec has indicated that there will be a $30,000 threshold (calculated on a rolling basis over the previous 12–month period), below which registration will not be required.
Although there are many layers of complexity that will need to be dealt with as the legislation is drafted, Quebec has already made it clear that the tax collected under this new system, as well as those collecting such tax, will not be treated the same as the traditional amounts of QST or the traditional QST collectors. For example, collectors under this new regime will not be entitled to recover any of their own QST costs by way of input tax refund.
Further, it appears that Quebec will also require certain digital intermediaries (e.g. a third party that provides the digital platform to enable supplies of intangibles) to register and collect the QST on such taxable supplies. This imposition of a compliance burden on such third party intermediaries, appears similar to similar compliance burdens placed on intermediaries in other value added tax jurisdictions (e.g. in Brazil, credit card companies are obligated to collect, report and remit certain sales taxes on payments made by resident Brazilians to non–resident suppliers of intangibles and services). Although we note that the Quebec proposals appear to exempt payment processors from such compliance obligations, we questions whether Quebec (and possibly Canada) will continue to move in this direction in order to more fully tax the digital economy.
As can be imagined, there will be many difficulties faced by Quebec in the implementation of this new form of QST, not the least will be ensuring compliance by non–residents. Although it is likely that Quebec will effectively be able to force compliance by Canadian suppliers that do not otherwise carry on business in Quebec, there will likely be significant challenges in enforcing such registration requirements of non–Canadian suppliers. Similarly, there will likely be significant challenges faced by such non–resident suppliers in determining whether they are making sales to consumers that are actually subject to this tax.