2015 QCCA 1402, 2015 QCCA 1402

Unofficial English Translation Agence du revenu du Québec c. Système intérieur GPBR inc. 2015 QCCA 1402 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-024019-135 (540-80-003438-105) DATE: September 3, 2015 CORAM: THE HONOURABLE NICOLE DUVAL HESLER, C.J.Q. PAUL VÉZINA, J.A. JEAN-FRANÇOIS ÉMOND, J.A. AGENCE DU REVENU DU QUÉBEC APPELLANT – Defendant v. SYSTÈME INTÉRIEUR GPBR INC.

RESPONDENT – Plaintiff JUDGMENT [ 1 ] The appellant appeals from a judgment of the Court of Quebec, Administrative and Appeal Division, District of Laval (the Honourable Judge Richard Landry), [1] rendered on October 15, 2013, which overturned the decision of the Minister of Revenue to dismiss the respondent’s objection to an assessment from the appellant and ordered that a new decision be made. [ 2 ] For the reasons of Émond, J.A., with which Duval Hesler, C.J.Q. and Vézina, J.A. agree, THE COURT : [ 3 ] ALLOWS the appeal, with costs, [ 4 ] SETS ASIDE the judgment under appeal; [ 5 ] DISMISSES the respondent’s appeal, with costs, and CONFIRMS the assessment.

NICOLE DUVAL HESLER, J.C.Q. PAUL VÉZINA, J.A. JEAN-FRANÇOIS ÉMOND, J.A. Mtre Danny Galarneau Mtre Louis Riverin Larivière, Meunier (Revenu Québec) For the appellant Mtre Caroline Desrosiers Mtre Kim Bélair Mtre David Coutu CD Legal inc. For the respondent

Date of hearing: March 17, 2015 REASONS OF ÉMOND, J.A. [ 6 ] Can a person who makes a taxable supply as a part of a commercial activity, i.e. the “registrant”, [2] claim, in his or her return determining the net tax for a given period, an input tax refund or an input tax credit (an “ITC”) with regard to the supply of a taxable good or service, if the person billing the person for this good or service is not the same one that rendered it, is not the person’s mandatary, or is not someone who, pursuant to an agreement with the person, caused or facilitated the making of the supply by the person? [ 7 ] In other words, can an accommodation invoice be the basis for an ITC?

BACKGROUND [ 8 ] In 2003, Gilles Picotte, Robert Marineau and André Marineau, three drywall finishers, formed the company Système intérieur GPBR inc. (“GPBR”) to operate an interior wall construction business. From that time, they have carried out their trade through this company. Its method of operation is simple. When GPBR obtains contracts, it subcontracts the installation of the gyprock and does the drywall finishing itself.

Sometimes, during very busy periods or when it obtains larger contracts, it may also subcontract the drywall finishing. [ 9 ] In June 2007, the Agence du revenu du Québec (“the ARQ”) carried out a seizure against GPBR. It suspected GPBR of being involved in a network of businesses that used accommodation invoices or false invoices to allow workers or contractors to defraud the ARQ.

According to the ARQ, most of the invoices filed by GPBR with the Minister to claim ITCs, namely about 60% of the bills submitted to it over a four-year period by its subcontractors, workers working alone for the most part, were from companies that provided false invoices. [ 10 ] About eight months after this seizure, the ARQ sent GPBR a notice of assessment totalling $79,000, [3] concerning ITCs claimed on the basis of these false invoices. [ 11 ] GPBR disputes this assessment. [ 12 ] In its notice of objection, it stated that it did not know that the invoices received from its subcontractors were from companies whose principal, if not only, activity was providing accommodation invoices.

It added that these invoices, although issued by corporate offenders, were not false invoices because the services billed had been rendered and duly paid for, including the taxes. It added that it was not up to GPBR to be liable for subcontractors who used this illicit scheme, which resulted in a fraudulent misappropriation of the taxes collected. It wrote: [ translation ] 10.

The Quebec Deputy Minister of Revenue has taken the position that some of the suppliers, subcontractors or consultants for which the opposing party has claimed expenses were not actual suppliers but instead were accommodation invoices issued by third parties for the sole benefit of the opposing party. 11. This position of the Quebec Deputy Minister of Revenue is unfounded in fact and in law. 12. In this regard, the opposing party has been able to show that the services appearing on each and every invoice disputed by the Quebec Deputy Minister of Revenue had actually been rendered . 13.

Furthermore, it is easy to make a direct connection between the services rendered and the activities and operations of the opposing party, including clearly identified deliverables. 14. The opposing party has also been able to unequivocally establish that these third-party suppliers had actually rendered the services and that the opposing party was well founded in fact and in law and had the right to have paid them the funds. … 18.

It is not up to the opposing party to be liable for and assume the tax burden of these suppliers or subcontractors who are not in good standing with the tax authorities . [Emphasis added.] [ 13 ] After analyzing the grounds raised by GPBR in its objection, the audit officer of the ARQ issued his memorandum on objection. Based on

section 201 AQST and sections 201R1 to 201R5 of the Regulation respecting the Québec sales tax (the “ Regulation” ), he found that GPBR had not proved that the companies that had supplied the invoices had rendered the services or that they had caused or facilitated the making of the supply. In sum, he considered that these accommodation invoices did not meet the regulatory requirements:

[ translation ] CONCLUSION: Given that the opposing party has not convinced us that the services described on the disputed invoices were performed by the suppliers involved in the dispute, we recommend maintaining the assessment in its entirety. [ 14 ] On the strength of this memorandum, the Minister of Revenue dismissed GPBR’s objection. [ 15 ] Appealing this decision before the Court of Quebec, GPBR asserted that by issuing the invoices on behalf of its subcontractors, the companies providing the accommodation invoices acted as “intermediaries” within the meaning of sections 201R1 to 201R5 of the Regulation .

It argued that these invoices were for work that had actually been done and paid for. GPBR did not deny that these invoices came from companies involved in trafficking accommodation invoices, however, and that they neglected to remit the taxes collected to the ARQ. [ 16 ] It added that, as the work provider, it did not have to verify the nature of the contractual relationship between its subcontractors and the companies that, in point of fact, were billing their services without remitting the taxes collected to the ARQ. According to GPBR, the AQST and the Regulation did not impose on it an obligation to check.

Although it acknowledged that the rejected invoices were issued by companies involved in a scheme to defraud the tax authority, it stated that the ARQ cannot for this reason alone make it liable. In this regard, it asserted its good faith. [ 17 ] The judge agreed. [ 18 ] First of all, he considered that the disputed invoices met the requirements of the AQST and the Regulation , with some exceptions. In his opinion, the AQST and the Regulation authorized the supplier of a service to have his services billed by another person.

In such cases, this person becomes the “mandatary” of the supplier or [ translation ] “the person who causes or facilitates the making of the supply” within the meaning of sections 201R1 to 201R5 of the Regulation , without having to show an interest in doing so. [ 19 ] Secondly, he understood GPBR to some extent to be a victim of the scheme in which most of its subcontractors were involved and that it not have to bear the consequences of this fraud.

In so doing, he set aside the ARQ’s position, which was that GPBR had failed in its general duty of prudence and diligence by not carrying out more detailed verifications of the invoices presented by companies with which it had not dealt directly. In his opinion, neither the AQST nor the Regulation imposed any obligation to check on a registrant. [ 20 ] In conclusion, he found from the evidence that the work described in the disputed invoices had to do with services that had actually been rendered and paid for.

He therefore found that GPBR had overturned the presumed validity of the assessment and that the ARQ had not been able to prove, on a balance of probability, that these invoices were not in compliance with the AQST and the Regulation .

In other words, even though the disputed invoices were issued by companies trafficking false invoices that had nothing to do with the work performed, the judge considered that the disputed invoices complied with the AQST and the Regulation . [ 21 ] He summarized his position in paragraphs [163] and [164] of the judgment: [ translation ] [163] For these reasons, the undersigned finds that the evidence presented by Revenu Québec is nowhere near outweighing the evidence adduced by the appellant and that Revenu Québec has not discharged its burden of proving the merits of the disputed assessment. [164] In light of the foregoing, the undersigned finds that GPBR has established that it was entitled to the ITRs claimed [36] because it met the documentary requirements prescribed by law, that the services for which it had claimed them had actually been rendered, and that its right is not affected by the fact that certain companies that billed it were suppliers of accommodation invoices (“SAIs”).

GROUNDS OF APPEAL [ 22 ] In appealing this judgment, the ARQ raises three grounds. [ 23 ] First, it asserts that the judge erred in law by finding that sections 201R1 to 201R5 of the Regulation [4] allowed intermediaries to issue invoices.

It maintains that the persons who billed for the work done by the subcontractors of GPBR, a majority of whom are workers working alone, were not “intermediaries” within the meaning of these provisions. [5] According to the ARQ, a company that bills for a supply does not become, solely because of this, a mandatary or a person who causes or facilitates the making of the supply, and it cannot submit an invoice. [ 24 ] Second, it maintains that the judge erred in law by finding that GPBR could argue a ground based on good faith. On the one hand, it asserts that GPBR was not acting in good faith.

On the other, it argues that the good faith of a registrant is not a factor to consider when it comes to assessing the eligibility of invoices issued to obtain an ITC. The requirements set out in sections 201R1 to 201R5 of the Regulation are specific, strict and mandatory. They must be verified, without regard to the good faith of the registrant, who does not stringently meet them. [ 25 ] Its third ground is closely related to the second. It argues that the judge erred by finding that the ARQ had added verification requirements not specified in the Act.

If a registrant is required to implement risk management measures, it is not because of a provision of the AQST or the Regulation , but rather by virtue of its general duty of prudence and diligence, to ensure that the invoices submitted to it by those who have done the work meet the regulatory requirement for ITCs. ISSUES IN DISPUTE

[ 26 ] In my opinion, the appeal raises two questions: 1. Has GPBR succeeded in making a prima facie case that the assessment is inaccurate? 2. Can it invoke its good faith to justify its ITC claim? Has it shown prudence? APPLICABLE PROVISIONS [ 27 ] The statutory provisions that are useful for dealing with the appeal are sections 201 AQST and 201R1 to 201R5 of the Regulation . [ 28 ]

Section 201 AQST states that a registrant may claim an ITC, that is, a refund or credit for taxes it had to pay to a supplier of goods or services, if it obtains sufficient evidence to determine the amount of the ITC claimed. In addition, it provides for the case where the ITC concerns property or a service supplied under circumstances in which it is required to report the tax payable in respect of the supply in a return filed with the Minister: 201 .

Un inscrit ne peut demander le remboursement de la taxe sur les intrants pour une période de déclaration, à moins qu'avant de produire la déclaration dans laquelle le remboursement est demandé: 1° il obtienne une preuve suffisante dans une forme contenant les renseignements permettant de déterminer le montant de ce remboursement, y compris tout renseignement prescrit; 2° dans le cas où le remboursement de la taxe sur les intrants est relatif à un bien ou à un service qui lui est fourni dans des circonstances telles qu'il est tenu de faire rapport de la taxe payable à l'égard de la fourniture dans une déclaration produite au ministre en vertu du présent titre, il fasse ainsi rapport de cette taxe dans une déclaration ainsi produite.

De plus, dans le cas où le remboursement de la taxe sur les intrants est relatif à un véhicule automobile dont l'inscrit a reçu la fourniture par vente au détail, il doit obtenir un document délivré par la personne tenue de percevoir la taxe payable à l'égard de cette fourniture attestant que cette taxe a été payée par l'inscrit. 201 .

A registrant may not claim an input tax refund for a reporting period unless, before filing the return in which the refund is claimed, (1) the registrant obtained sufficient evidence in such form containing such information as will enable the amount of the refund to be determined, including any such information as may be prescribed; and (2) where the input tax refund is in respect of property or a service supplied to the registrant in circumstances in which the registrant is required to report the tax payable in respect of the supply in a return filed with the Minister under this Title, the registrant has so reported the tax in a return filed under this Title.

Furthermore, where the input tax refund is in respect of a motor vehicle supplied to the registrant by way of retail sale, the registrant shall obtain a document issued by the person required to collect the tax payable in respect of the supply certifying that the tax has been paid by the registrant. [ 29 ] Sections 201R1 to 201R5 of the Regulation specify the information a registrant must provide in the return it is required to file with the Minister.

These sections stipulate that, in all cases, the registrant is required to give the name of the supplier of the good or service for which it is claiming an ITC, the name of the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business. Furthermore, if the supply is more than $30, the registrant must also provide the registration number assigned to the supplier or the intermediary, as the case may be:

201R1 . Pour l'application des articles 201R3 à 201R5, l'expression: … «intermédiaire» d'une personne signifie, à l'égard d'une fourniture, un inscrit qui, agissant à

titre de mandataire de la personne ou en vertu d'une convention conclue avec la personne, lui permet d'effectuer la fourniture ou en facilite la réalisation; 201R2 . Pour l'application de l'article 201 de la Loi, les articles 201R3 à 201R5 énumèrent les renseignements qui constituent les renseignements prescrits. 201R1 . For the purposes of sections 201R3 to 201R5, the expression: … “intermediary” of a person means, in respect of a supply, a registrant who, acting as a mandatary for the person or under an agreement with the person, causes or facilitates the making of the supply by the person; 201R2 . For the purposes of

section 201 of the Act, sections 201R3 to 201R5 list the information that is prescribed information. 201R3.

Dans le cas où le montant total payé ou payable qui est indiqué sur la pièce justificative à l'égard d'une ou de plusieurs fournitures est de moins de 30 $, les renseignements prescrits sont les suivants: 1° le nom du fournisseur ou de l'intermédiaire à l'égard de la fourniture ou celui sous lequel il fait affaire ; 2° si une facture est délivrée à l'égard de la ou des fournitures, la date de la facture; 3° si aucune facture n'a été délivrée à l'égard de la ou des fournitures, la date à laquelle il y a une taxe payée ou payable à l'égard de celles-ci; 4° le montant total payé ou payable pour la ou les fournitures; 5° sous réserve du paragraphe 6, la taxe payée ou payable ou le taux de la taxe à l'égard de chaque fourniture; 6° si un montant constitué à la fois de la taxe payée ou payable et de la taxe sur les produits et services payée ou payable est indiqué sur la pièce justificative, le total de la taxe payée ou payable et de la taxe sur les produits et services payée ou payable à l'égard de chaque taxable supply, ainsi qu'une déclaration selon laquelle ce total comprend la taxe payée ou payable; 7° une description suffisante pour identifier 201R3.

Where the total amount paid or payable shown on the supporting documentation in respect of one or more supplies is less than $30, the prescribed information is the following: (1) the name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business ; (2) where an invoice is issued in respect of the supply or supplies, the date of the invoice; (3) where an invoice is not issued in respect of the supply or supplies, the date on which there is tax paid or payable in respect thereof; (4) the total amount paid or payable for the supply or supplies; (5) subject to paragraph 6, the tax paid or payable or the tax rate in respect of each supply; (6) where an amount constituted by both the tax paid or payable and the goods and services tax paid or payable is shown on the supporting documentation, the total of the tax paid or payable and the goods and services tax paid or payable in respect of each taxable supply, and a statement to the effect that that total includes the tax paid or payable; and

chaque fourniture si la pièce justificative, en l'absence de cette description, ne permet pas de déterminer avec certitude le remboursement de la taxe sur les intrants demandé. 201R4.

Dans le cas où le montant total payé ou payable qui est indiqué sur la pièce justificative à l'égard d'une ou de plusieurs fournitures est de 30 $ ou plus et de moins de 150 $, les renseignements prescrits sont les suivants: 1° le nom du fournisseur ou de l'intermédiaire à l'égard de la fourniture ou celui sous lequel il fait affaires et le numéro d'inscription attribué au fournisseur ou à l'intermédiaire conformément à l'article 415 de la Loi, selon le cas; 2° les renseignements requis aux paragraphes 2 à 7 de l'article 201R3. 201R5.

Dans le cas où le montant total payé ou payable qui est indiqué sur la pièce justificative à l'égard d'une ou de plusieurs fournitures est de 150 $ ou plus, les renseignements prescrits sont les suivants: 1° les renseignements requis à l'article 201R4 ; 2° soit le nom de l'acquéreur ou celui sous lequel il fait affaires, soit le nom de son mandataire autorisé ou de son représentant autorisé; 3° les modalités de paiement; 4° une description suffisante pour identifier chaque fourniture. (7) a description of each supply sufficient to identify it, where the supporting documentation without that description does not enable the input tax refund to be determined with certainty. 201R4.

Where the total amount paid or payable shown on the supporting documentation in respect of one or more supplies is $30 or more and less than $150, the prescribed information is the following: (1) the name of the supplier or the intermediary in respect of the supply , or the name under which the supplier or the intermediary does business, and the registration number assigned under

section 415 of the Act to the supplier or the intermediary , as the case may be; and (2) the information required in paragraphs 2 to 7 of

section 201R3. 201R5. Where the total amount paid or payable shown on the supporting documentation in respect of one or more supplies is $150 or more, the prescribed information is the following: (1) the information required in

section 201R4 ; (2) the recipient's name, the name under which he does business or the name of his authorized mandatary or representative; (3) the terms of payment; and (4) a description of each supply sufficient to identify it. [ Emphasis added. ] ANALYSIS Question 1 : The accuracy of the notice of assessment [ 30 ] Through its notice of assessment, the ARQ claims the ITCs from GPBR that it obtained on the strength of invoices submitted by companies specializing in trafficking accommodation invoices.

In its opinion, such invoices do not meet the requirements provided in sections 201R1 to 201R5 of the Regulation , as the companies that issued such invoices were not “intermediaries” within the meaning of these sections, i.e. registrants who were acting as mandataries for the subcontractors of GPBR or who, pursuant to agreements, caused or facilitated the making of the supply by the subcontractors. [ 31 ] It was therefore up to GPBR to rebut the presumption of the validity of this notice of assessment by making a prima facie case

that it is inaccurate . [ 32 ] In this regard, GPBR in no way disputes the ARQ’s claim that the rejected invoices are from companies whose sole activity is to provide accommodation invoices. It also does not dispute the ARQ’s position that these companies, by issuing accommodation invoices, are carrying on illicit and fraudulent activities to obtain unjustified tax “refunds” while favouring work performed under the table.

Finally, and even more importantly, it in no way proved that there was any connection between GPBR and the companies supplying the accommodation invoices. [ 33 ] In fact, GPBR limited itself to raising a legal argument. [ 34 ] It maintained that the suppliers of the services, the subcontractors concerned by the assessment, all non-registrant workers, [6] could have their services billed through registrant supplier companies.

It argued that a company that bills for the services of a non- registrant supplier thereby becomes the mandatary of such non-registrant supplier or a person who, under an agreement with that supplier, causes or facilitates the making of the supply of the service by the supplier. In other words, sections 201R1 to 201R5 of the Regulation allow billing by an intermediary: [7] [ translation ] [53] …counsel for GPBR argues instead that

section 201R4(1) of the Regulation requires that the name of the supplier “ or the intermediary ” be provided and that as a result, there may be two different people for the provision of the service and its billing .

This is the case here, she argues, where the “ suppliers ” of services are the gyprock installers and drywall finishers who performed the services under a subcontract for GPBR (e.g., Réginald Hallée, Mario Savard, Sylvain Dagenais, etc.) while the “ intermediaries ” are the companies that billed these services to GPBR. [54] Counsel for GPBR bases her argument on the rule that the legislator does not speak in vain and that if it stated that the name of the supplier “ or the intermediary ” should be provided, the latter must be a different person from the “ supplier” and, in this case, the person who billed the services rendered.

This would negate the equation proposed by Revenu Québec to the effect that the person who bills the services must necessarily and exclusively be the one who performs them. [55] According to the appellant, all the companies that billed the services are registrants that acted as “ intermediaries ” for the persons who actually performed the work on the sites. Consequently, the invoices issued in the name of these companies meet the regulatory requirement prescribing the disclosure of a name in

section 201R4(1). [56] In the present case, the gyprock installers or drywall finishers hired under a subcontract by GPBR who themselves are not “ registrants ” had their services billed by these companies that are registrants within the meaning of the Act and were their “ mandataries ” or co-contracting parties under an agreement with them (s. 201R1).

This caused “ the making of the supply ” or, at the very least, it “ facilitate[d] the making of the supply ” by allowing them to bill for their work, among other things. [57] Both counsel agree in oral argument that based on their extensive research, taxation case law has not discussed the meaning to be given to the term “ intermediary ” , let alone granted or refused ITRs if such an intermediary existed when the services rendered were provided. [ Emphasis in original ] [ 35 ] In his judgment, the judge accepts this

interpretation. He finds that sections 201R1 to 201R5 of the Regulation allow a non- registrant worker to bill his work through a registrant, and as soon as the services provided are billed by a registrant, the regulatory requirements are met. To illustrate his reasoning, he gives an example of a general contractor who, under his contract, bills his client for the work performed by his subcontractors, who have billed him for their work. This is how he puts it: [ translation ] [63] In my opinion, the position of GPBR must prevail. [64] In fact, in the case of putting a name on an invoice for the supply of a service rendered under

section 201R4, this name may be either that of the “ supplier ” itself or of an “ intermediary ” , or the name “ under which the supplier [or the intermediary] does business” . [65] This is what is expressly stated in

section 201R4 of the Regulation . [66] In Placer Dome Canada Ltd. , the Supreme Court of Canada states that if the text of a taxation statute is clear and precise, the court must apply it (the Honourable Mr.

Justice Lebel):… [67] Here, the Act clearly does not require that a supporting document be exclusively in the name of the supplier of services, as Revenu Québec claims. [68] On the contrary, the legislator has adopted a flexible approach to its documentary requirements for obtaining an ITC or an ITR by stating that the invoice with the description of the services and their price may also be issued in the name of an intermediary or the name under which the supplier does business. [71] When a general contractor bills his client for the construction of a home, he bills it for and on behalf of all the subcontractors who worked to build this home.

He is therefore not the one who performed the work under a subcontract but he becomes the intermediary for the subcontractors with respect to his client by billing their services under his name, by collecting the payment and then paying what is due to each subcontractor . [72] It is therefore wrong to claim that the supplier of a service must bill only in his own name for the purchaser of the supply to be

entitled to ITRs. Moreover, in the present case, the workers were non-registrants. [73] The companies that bill for the workers who worked under a subcontract for GPBR are registrants and are therefore allowed to make supplies and bill them to the company that contracted out the work, which in this case is GPBR. [74] It can further be concluded that these same workers, who supplied the services, “ do business ” under the name of the companies that bill for their services within the meaning of

section 201R4 of the Regulation . [ Emphasis added. ] [ 36 ] With respect, I consider that the judge erred in law in construing sections 201R1 to 201R5 of the Regulation in this way. His

interpretation does not respect the letter of the Regulation or the intent of the legislator. I would add that in equating GPBR’s situation to that of a general contractor who bills his client for the services provided and billed by his subcontractors, which is one of the situations covered in sections 201R1 to 201R5 of the Regulation , the judge also erred again in law.

In this case, the two situations are distinctly different. [ 37 ] Let me elaborate. [ 38 ] Under sections 201R1 to 201R5 of the Regulation , only invoices presented by a supplier, its mandatary, i.e. a person having the power to represent it in the performance of a juridical act with a third person, [8] or a person who, under an agreement, caused or facilitated the rendering of the service by the supplier, can give rise to an ITC.

In all cases, the invoice must be issued by a registrant that has an interest in issuing the invoice, thereby automatically excluding accommodation invoices, or worse, false invoices. [ 39 ] By enacting sections 201R1 to 201R5 of the Regulation , the legislative intent was certainly not to allow non-registrant workers who provide services to have them paid by resorting to accommodation invoicing by a registrant that has no interest in invoicing them.

That seems to me to be especially true in cases where, as in the one before us, non-registrant suppliers who should have been registrants [9] bill for their services through bogus companies that fraudulently obtain ITCs and are utterly unconcerned that they are promoting the underground economy in this way. [ 40 ] On the contrary, these regulatory provisions are specifically aimed at preventing accommodation invoicing, whether or not fraudulent.

The courts have noted this countless times. [10] Regulatory requirements such as those in sections 201R1 to 201R5 of the Regulation are intended to protect the public treasury against all incursions, regardless of whether or not they can be designated as fraudulent. [11] These requirements are strict and mandatory.

They must be rigorously met by any registrant claiming an ITC, failing which the ITC cannot be granted. [ 41 ] In this case, GPBR has not succeeded in making a prima facie case that the ARQ’s assessment is inaccurate. [12] The evidence adduced in no way shows that each of the invoices rejected by the ARQ and on which it based its ITC claims originate: (

i) directly from its subcontractors; (ii) from companies acting as mandataries for the account of its subcontractors; or (iii) from companies, which, under agreements, caused or facilitated the rendering of services by its subcontractors. [ 42 ] In this context, a single conclusion was available to the judge: The invoices used by GPBR in support of the rejected ITCs fail to meet the requirements in sections 201R1 to 201R5 of the Regulation . [ 43 ] I add that by arguing that it was the victim of dishonesty on the part of the subcontractors, who had used corporate offenders to bill for their services, GPBR found itself and still finds itself implicitly acknowledging the position defended by the ARQ, namely that these invoices were not issued by real intermediaries within the meaning of sections 201R1 to 201R5 of the Regulation .

As I will explain below, a registrant’s good faith is not a test for an ITC claim . Question 2 : Good faith and the obligation to check [ 44 ] Although the answer to the previous question disposes of the appeal, I consider it appropriate to make a few comments about the second issue regarding a registrant’s obligation to check. [ 45 ] In his reasons, the judge rejects the ARQ’s argument that GPBR displayed negligence by failing to carry out certain verifications to protect itself against contractors using a false invoicing scheme.

He explains that the AQST does not impose an obligation to check on a registrant claiming an input tax credit.

In fact, he turns the argument against the ARQ, criticizing it for failing to set up a register to identify corporate offenders and prevent registrants from being victims of such a scheme: [ translation ] [77] Throughout the hearing, the witnesses called by Revenu Québec ‒ auditors or experts in accommodation invoices ‒ drew up a rather long list of the requirements that a company such as GPBR should meet before issuing subcontracts to companies to be eligible for ITRs or ITCs: … [78] According to Revenu Québec, meeting such additional requirements would mean acting responsibly, prudently, and diligently to guard against fraudsters. [79] It argues that these verifications are justified by the duty of prudence and diligence that any company must demonstrate in the normal course of its business and by the need to detect illegal companies such as suppliers of accommodation invoices (“SAIs”).

Failure to discharge several of these duties disqualify a company from claiming ITCs or ITRs. [80] Counsel for GPBR objected to this way of looking at things. To be entitled to ITCs or ITRs, they argue, a taxpayer should be

required to meet only the requirements prescribed by the Act and nothing else.

If requirements other than those prescribed by the Act need to be met, they should be added to the applicable legislation. [81] Here again, I am of the opinion that GPBR’s claim regarding the matter is essentially well founded. [82] It is a well-established rule in tax law that taxpayers cannot be required to do more than the obligations imposed on them by law. … [157] Furthermore, in paragraph 40 of Pro-Poseurs , in addition to noting the numerous contradictions in the appellant’s testimony, Bédard J. criticizes the appellant for not verifying where the cheques had been cashed and for not verifying with the CCQ and the CSST the hours worked by the employees of the dubious suppliers, in the same way as Revenu Québec criticizes GPBR in the present case. [158] As previously mentioned, such verifications are not part of the legal requirements prescribed for obtaining an ITC or ITR.

They can be used to enhance a [ translation ] “ due diligence ” defence, where applicable (e.g. for penalties), but not to decide on entitlement to an ITR or an ITC. [Emphasis in original.] [ 46 ] This conclusion seems wrong to me, even dangerous, in that it provides directions which, if followed, may prove fraught with consequences. While it is true that the AQST and the Regulation do not expressly impose an obligation to check on the registrant, they do so indirectly by imposing strict ITC eligibility requirements.

The ARQ is therefore right in stating that a registrant does have an obligation to check, which arises implicitly from the requirements under the AQST and the Regulation with regard to ITC claim eligibility. [ 47 ] I have pointed out that the prescribed requirements under

section 201 AQST and sections 201R1 to 201R5 of the Regulation aim to protect the ARQ against inadmissible claims for tax refunds, whether fraudulent or not. These legal requirements are strict and should be rigorously applied. The good faith of a registrant claiming to be the victim of fraudulent schemes cannot be used to authorize the ARQ to accept an ITC claim that fails to comply with legal prescriptions.

The ARQ has no latitude or discretion in this regard. [ 48 ] To ensure that ITC claims are admissible, it is in the interest of registrants to verify whether the invoices submitted to them by their suppliers actually originate from those who supply the service, from their mandatary, or from persons who have caused or facilitated the making of the supply. If they fail to do so, the consequences may prove to be very onerous.

Registrants may be required to assume large losses if, as in the case of GPBR, the ITCs it claimed are based on accommodation invoices or false invoices. [ 49 ] The registrant’s duty of verification and diligence is crucial, for its own protection. [ 50 ] This case is a prime example. [ 51 ] Between October 2003 and June 2007, more than 60% of the invoices submitted to GPBR were from companies involved in trafficking false invoices. How can such a situation be explained if not by a lack of diligence? While GPBR may have been of good faith, as the judge found, it certainly did not fulfil its obligation to check.

A few control measures could have allowed it to detect the scheme being used by its subcontractors, especially since it is a problem endemic to interior wall construction and is well known in the industry. [ 52 ] For these reasons, I would allow the appeal of the ARQ, with costs, reverse the judgment of the Court of Quebec sitting in appeal from the decision of the Minister of Revenue rendered on the objection, and dismiss the motion to appeal from this assessment, with costs. JEAN-FRANÇOIS ÉMOND, J.A.