Quebec Sales Tax Proposals Target Non-Resident E-Commerce
On March 27, 2018 Quebec announced unprecedented proposals for expanding the 9.975% Quebec Sales Tax to e-commerce. If these proposals are passed, they will have significant implications for non-resident e-commerce businesses selling to Quebec. Simon Thang, principal of Thang Tax Law, was quoted in a March 28, 2018 story by Bloomberg BNA Daily Tax Report observing that “The proposals are very broad and would sweep non-resident suppliers into the Quebec tax net even if they have little connection with the province other than sales to customers residing there.” In fact, e-commerce suppliers may be required to register and collect QST even if they are currently not required to register and collect federal Goods and Services Tax/Harmonized Sales Tax (GST/HST).
Current Registration Rules
The provincial QST and the federal Goods and Services Tax/Harmonized Sales Tax apply to a broad range goods, services and intangibles (see our Canadian Sales Tax Map and article on When to Charge Canadian GST/HST and Sales Tax & How Much?). The 9.975% QST applies to supplies considered to be made in Quebec, while the 5% GST applies to supplies made anywhere in Canada (the 8-10% HST applies to supplies made in HST provinces, such as Ontario). Currently, non-residents of Canada who do not “carry on business” in Quebec or in Canada are generally not required to register for QST or GST/HST, respectively. In the case of services and intangibles, such as Netflix and Spotify, consumers are generally supposed to self-assess any applicable tax (the rules for tangible goods are different due to collection at the Canadian border and special QST rules for Canadian-resident businesses who sell into the province). We have written extensively on Canadian sales tax and e-commerce, including this article on Non-resident GST/HST Registration, Collection & E-Commerce.
The reliability of self-assessment for e-commerce has been called into question by various governments, as recognized by guidelines from organizations such as the Organisation for Economic Co-operation and Development (OECD).
With these proposals, Quebec appears to be abandoning self-assessment and reaching direct at non-resident suppliers.
The QST Proposals
Quebec is proposing to require non-residents to register and file quarterly returns simply if they exceed $30,000 in sales to Quebec consumers in the prior year. In stark contrast to the current QST rules and the federal GST/HST rules, there would be no exclusion for non-residents who do not carry on business in the province or have any physical presence. There would be two options for registration: a simplified approach, which would not permit any input tax refunds and “normal” registration, which would. Non-residents should carefully consider which route to choose as there are different consequences. For example, the proposals would impose mandatory federal GST/HST registration on persons registering for QST under the “normal” option. The risks and compliance obligations for non-residents under the proposals could be significant even though they are intended to be simplified. For example, the registration threshold is based on sales to consumers resident in Quebec, which creates risk for disputes over the status of a non-resident’s customers.
The deadline for registration would be January 1, 2019 in the case of non-residents of Canada, and September 1, 2019 for residents of Canada.
Related proposals apply to certain online platforms which enable transactions and “control key elements of transactions” such as billing, transaction terms and conditions, and delivery. Although not identified by name in the Budget, there have been concerns in Quebec about inadequate tax and competition concerning supplies provided by individuals through online platforms such as Airbnb and Uber. The proposals would force the platform to register and collect applicable tax, even if it is individual users who make the underlying sale. This raises number of issues, such as identifying which platforms are subject to the requirements and which are not. Further, it may require platforms and sellers to determine their respective registration status to ensure that one does not incorrectly assume the other is collecting tax.
Can Quebec Force Non-Residents to Register?
The Quebec proposals are modelled after the multi-national OECD guidelines for taxation of the digital economy. However, as Simon Thang noted in the Bloomberg story, “What is novel here is that a subnational government is trying to impose them.” This is important because the provinces have limited jurisdiction to impose taxes on non-residents. There is genuine concern that Quebec may be over-stepping its jurisdiction with these proposals. It is also unclear how Quebec intends to enforce the requirements against non-residents of Canada who have little or no presence in the province, let alone in Canada.
If you concerned about these proposals may affect your business, please contact us for more information and advice.
Simon Thang, LL.B, LL.M (Taxation) is Toronto tax lawyer practising exclusively in the areas of sales tax (GST/HST, PST), and customs and trade. He is the principal of Thang Tax Law.