Agence du revenu du Québec v. Stamatopoulos, 2018 QCCA 474

The respondent (“Stamatopoulos”) served as an intermediary between clothing manufacturers and subcontractors, who would sew and assemble the clothing. Representatives of the subcontractors, who had provided Stamatopoulos with valid GST and QST registration numbers which he had checked (along with other registration information), delivered the clothing after it had been sewn directly to the manufacturers. Stamatopoulos paid their invoices (issued in the name of the subcontractors) by cheque after, in turn, being paid by the manufacturers. The subcontractors did not remit the QST paid to them by Stamatopoulos, and the trial judge found (at para. 27 that de facto managers, who were unknown, managed the subcontractors rather than their de jure (i.e., registered) managers. Although the ARQ acknowledged that the contracted-for sewing services had been received, it took the position (paras. 36, 43) that such work had not been performed by the subcontractors named in the invoices.

Before affirming the finding below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming input tax refunds, Marcotte JCA stated (at paras. 53-54, 56):

[C]ontrary to what was pleaded by the Agency, it matters little whether the person with whom the taxpayer deals directly in connection with a genuine commercial transaction acts as a “supplier” or an “intermediary,” since the provisions of the Regulation respecting the Québec sales tax provide that the invoice must contain the name of the “supplier” or that of the “intermediary” who is authorized by the supplier to cause or facilitate the making of the supply. Whether the person with whom the taxpayer deals directly, in a genuine commercial transaction, itself supplied the work is without consequence if the supporting documentation satisfies the requirements of this Regulation… .

Furthermore, where the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices in fact were issued by a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.” …

[T]he judge concluded that the evidence presented by the Agency did not support the hypothesis that a business other than the subcontractors indicated in the invoices had transacted with Mr. Stamatopoulos, all the more as he had demonstrated his direct contractual relationship with the subcontractors and as the Agency did not contest that the invoices emanated from the subcontractors stated on the invoices, but instead challenged that the services actually were provided by them.

A taxpayer (Stamatopoulos) serviced clothing manufacturers by securing sewing services for clothes that then were delivered to the manufacturer. He checked the GST and QST registration numbers of the subcontractors and paid the invoices delivered in their name to him once he, in turn, had been paid by the manufacturer. The QST paid by him was not remitted by the subcontractors, and the ARQ position was that he was not entitled to input tax refunds because the persons in whose names the invoices were issued were not the persons who had actually rendered the sewing services to him.

In confirming the position below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming ITRs, Marcotte JCA proceeded on the basis that (para. 54, TaxInterpretations translation):

[W]here the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices properly emanated from a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.”

The ARQ had not met this onus.

She also noted that it did not matter whether the subcontractors with whom Stamatopoulos had dealt had in fact provided the sewing services, because the Quebec equivalent of the Input Tax Credit Information (GST/HST) Regulations provided that a good invoice could also be issued by an intermediary.

A taxpayer (Stamatopoulos) serviced clothing manufacturers by securing sewing services for clothes that then were delivered to the manufacturer. He checked the GST and QST registration numbers of the subcontractors and paid the invoices delivered in their name to him once he, in turn, had been paid by the manufacturer. The QST paid by him was not remitted by the subcontractors, and the ARQ position was that he was not entitled to input tax refunds because the persons in whose names the invoices were issued were not the persons who had actually rendered the sewing services to him.

In confirming the position below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming ITRs, Marcotte JCA proceeded on the basis (at para. 54) that:

[W]here the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices in fact were issued by a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.”

The ARQ had not met this onus.