Montreal: Resentment is brewing in the industry over the kind of story that appeared on page 1 of the July 13 edition of the National Post.

Sensationalized with its ‘Quebec audit finds massive tax abuse’ headline, the story was quick to sum up, ‘The news that up to one in three Quebec companies might have filed improper tax credit claims is just the latest revelation to tarnish federal and provincial government attempts to encourage a domestic movie and television industry.’

While there is a tax credit battle royale underway in Montreal these days, it’s centered on distinctly less sensational issues like interpretations, specifically in the areas of producer’s fees, administration expenses and contracted production services.

Brigitte Portelance, director of standards and programs at Revenue Quebec, says, indeed 100 out of 300 producer tax-credit claims filed during the three-year period from 1996 to 1998 have been retained for additional verification purposes, as reported. But, she adds, out of the 100 productions (typically filed by shell companies established for the purpose of a single production) only 21 ‘financing groups’ (production houses) are represented.

Portelance says only a few producers have actually received assessment notices, and the process – which will include ‘on-site’ visits to producers and service providers – will continue through to next spring.

‘As for the article in The National Post, we didn’t provide any figures in terms of the outcome of our verifications,’ she says. ‘As the program isn’t complete, we haven’t advanced any results (in dollars terms).’

No fraud charges have been made against any producer, she says. ‘I think people have a hard time distinguishing between [tax] adjustments resulting from our verifications, and fraud.’

The overall percentage variance between the tax credit claims made by producers and Revenue Quebec’s revised assessments at this point is unknown to both the apftq producers association and the tax-credit certification managers at sodec. The Post’s story reflected no such restraints, declaring, ‘tv and film companies to be ordered to repay millions of dollars in tax credits.’

Seen here as yet another cheap-shot story in a Toronto paper, several industry observers in Montreal told Playback the real agenda behind stories like the one in The Post is to skew fierce jurisdictional competition, namely, to promote one Canadian jurisdiction, Ontario, over another, Montreal, for the purposes of winning production financing and off-shore production, in general.

‘Gross defamation’

The apftq has denounced the story as ‘gross defamation,’ adding that significant interpretative differences between the Quebec ministries of Revenue and Finance have been resurfacing since 1995.

The major ‘interpretative’ issues currently under negotiation relate to producer fees and administrative costs, particularly the latter, says Stephane Cardin, director-general, tax credits with sodec.

Producer fees and administration overhead can each represent up to 10% of a project’s production and post-production schedules (commonly referred to as the B and C schedules of the budget).

But the issue remains controversial despite modifications to the law in June of ’98. ‘The problems lie in what Revenue considers should be included in that maximum,’ says Cardin.

A case in point: Revenue currently deems the position of production accountants as part of the general overhead expenses, and not a direct cost related to a production, as has been the case, historically, in tax credit documents available from sodec and standard production budget documents from Telefilm Canada.

‘That’s just one example of the kind of question we’re dealing with, and what the context is right now,’ says Cardin.

The interpretative haggling goes beyond producers and the tax department, extending to officials in various Quebec government departments, including Revenue and Finance.

Cardin says there have been no dire warnings of ‘widespread misuse and abuse’ on the part of Revenue Canada, although Canada Customs and Revenue Agency audits 100% of the production tax credit claims it receives and is dealing with the same cost-documentation filed with Revenue Quebec.

A series of measures aimed at exercising better control over the Quebec refundable production tax credit program was published June 22 in a joint report by Revenue Quebec, the Minister of Culture and Communications and sodec.

The recommendations (‘Rapport de la Table de concentration mrq-mcc-sodec’) include a proposal to increase information exchanged between sodec and the tax department and an obligation by producers to provide Revenue Quebec with a detailed list of the names and addresses of all the individuals who receive payments in the course of the production – documentation previously only required by sodec.

Another recommendation accepted by the three parties proposes to ‘review and (add) precision’ to the ‘notions of administration expenses, productions expenses and post-production.’

In a concluding section, the document proposes eligible tax credit expenditures be limited to manpower costs, in the case of sub-contracted services.

sodec issues advanced tax rulings as an estimate for the purposes of financing a production.

Advanced tax rulings issued by sodec (which vary slightly from actual credits paid out by the minister) were $63.6 million in ’96, $64.9 million in ’97, $86.3 million in ’98, $75.2 million in ’99 and $97.8 million in fiscal 2000.*