ARTV Inc. v. Agence du revenu du Québec, 2016 QCCQ 8757 (Cour du Québec)

The rate of health premium tax to which ARTV Inc. (“ARTV”) was subject (under the Loi sur la régie de l'assurance maladie du Québec) turned on whether the total annual payroll of it and persons with whom it was associated exceeded $5 million. Although Radio Canada held 61% of the ARTV shares (which were voting), this did not give it control of ARTV in light of a unanimous shareholder’ agreement (the “USA”) which required a special voting majority of 66 2/3%. Whether ARTV was associated with Radio Canada instead turned on whether Radio Canada had (as per the Quebec equivalent of s. 251(5)(b)(i), namely, s. 21.20.4 of the Taxation Act) "a right...either immediately or in the future and either absolutely or contingently...to acquire" a pro rata portion of a 15% bloc of ARTV shares held by the second-largest shareholder (“ARTE France”). This question referenced a term of the USA which gave ARTE France the right to put its shares to the other shareholders at its cost, so that the ARQ was arguing that Radio Canada had a right described in the equivalent of s. 251(5)(b)(i) to acquire 61% of the 15% ARTE France bloc (or 9%), so that, including this contingent right, Radio Canada should be treated as having voting rights over more than 66 2/3% of the ARTV shares.

In finding that this clause did not give Radio Canada the “right” to acquire the 9% bloc of shares (so that Radio Canada was not associated with ARTV), Cameron JCQ stated (at paras. 41, 45, TaxInterpretations translation):

Before the exercise by ARTE France of its option, which depended on its will, Radio Canada had no right and, notwithstanding the irrevocability of its obligation to purchase, no expectation of purchasing, given the absence of control or influence over ARTE France. ...

[T]he suspensive condition and the decision of ARTE France to trigger the sale or not depended on the sole discretion of the latter. The obligation of ARTE France, if one wished to term it that, was nul by reason of the existence of the purely potestative condition. [He then quoted s. 1500 of the Civil Code.]

ARTV would have been associated with its largest shareholder (Radio Canada) under the Quebec equivalent of s. 251(5)(b)(i) if the obligation of Radio Canada to acquire the ARTV shares of another shareholder (ARTE France) in the event ARTE France exercised a put right constituted a “right” to acquire those shares for s. 251(5)(b)(i) purposes. Before finding that ARTV had no such s. 251(5)(b)(i) right given inter alia that under the Quebec Civil Code the potential put exercise represented a “condition purement potestative” (i.e., a contractual condition the fulfillment of which was entirely in the control of ARTE France), Cameron JCQ stated (at para. 29, TaxInterpretation translation):

Tax law is, in a way, superimposed on the civil law and the corporate law, that which one could call the common or general law. When tax law is based on such law, one must have recourse first to the existing juridical concepts.