Quebec audit uncovers tax credit abuse

Illegal use of public subsidies may not be restricted to Cinar

MONTREAL — Following an extensive audit, Quebec tax authorities have uncovered widespread abuse of the tax-credit system by the province’s film and TV companies. Close to 100 companies will have to pay back money to the provincial government because they deliberately or accidentally misrepresented their labor and production costs to the government.

The Revenue Quebec audit comes on the heels of allegations last fall that Montreal-based kids-TV producer Cinar Corp. was committing fraud by putting phony Canadian names on scripts penned by Americans in order to access the lucrative tax-credit program. The results of the Quebec government audit are the first indication that the abuse of the public subsidies appears to not be restricted to Cinar.

Tax-credit returns

Revenue Quebec spokesman Brigitte Portelance said that there were 100 companies under review and that the majority of them would have to hand back some of the money they had received from the program. Portelance said there were clearly problems in the sector, but said it was hard to prove fraud due to the difficulty of ascertaining criminal intention in such cases.

Claire Samson, president of the Quebec Film and Television Producers Assn., said most producers do not abuse the tax-credit system. She did concede that many producers were in dispute with Revenue Quebec over interpretation of the tax-credit regulations, which she said are simply too complicated.

“Most of those cases are probably related to confusion in interpretation of some aspects of the law,” said Samson. “In most cases, we’re not talking about millions of dollars.”

Financing difficulties

But producers say the bad press surrounding the allegations of tax fraud are making it harder for them to gain bridge financing for their projects from Canadian banks. In general, producers have to borrow from the bank using the tax credits as collateral. The credits are usually only paid several months after shooting wraps.

Last year, Revenue Quebec doled out C$97 million ($66 million) in tax credits to film and TV companies.

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