When in Quebec, do as the Irish do.

It's certainly not a notion that would wash with Quebec's vocal separatist movement. Nonetheless, that was the gist of the most striking business recruitment message contained in Quebec Finance Minister Bernard Landry's recent announcement of the new provincial budget.

Unabashedly taking a page from Ireland's highly successful strategy, Landry announced that Quebec will now offer a 10-year tax holiday on major investment projects. Specifically, the 10-year tax break will apply to location projects that:

• entail an investment of at least US$300 million and an increased payroll of at least $4 million or

• increase payroll by at least $15 million.

"We would do well to follow in the footsteps of the Republic of Ireland . . . a small country that has experienced phenomenal growth," Landry said in his budget speech.

"We are moving toward the Irish model," he added. "That should please a large number of our fellow citizens who trace their origins back to Erin's fair isle."

New Program Continues
Quebec's Aggressive Recruiting

The new tax holiday continues Quebec's aggressive efforts to attract business, which are spearheaded by Investissement-Quebec (www.invest-quebec.com), or Invest-Quebec, the province's lead development agency.

In 1998, for example, a Quebec consortium of private companies and city and provincial agencies launched the Multimedia City (MMC) project in Montreal, an R&D complex that will house as many as 10,000 workers in 1 million sq. ft. (90,000 sq. m.) of space. Quebec's government provides companies that locate in the MMC with tax credits of up to $15,000 of each employee's annual salary until 2008.

The MMC is part of the successful strategy that Quebec has utilized in attracting R&D. In recent years, the province has landed a number of major high-tech investments from the likes of Ericsson Research, Excel Communications, Harris Farinon, Nortel Networks, Nortek and Motorola.

New Incentives Make Quebec
Competitive with U.S. States and Ireland

Landry's 10-year tax holiday further turns up the heat in Quebec's business recruiting.

More aggressive incentives were needed, Landry explained, to avoid losing major facility location projects to other areas like Ireland. The new budget, he said, "puts us in the game when we're competing with Ireland and certain U.S. states."

The new tax holiday will cost the government some $60 million a year within five years, according to government officials. (That figure, of course, doesn't take into account the potential economic benefits of the new jobs added to the provincial economy.)

Reaction from the provincial business sector was generally positive. However, some members of the Quebec business community said the province should be placing more emphasis more action on cutting capital and payroll taxes.

The most critical reaction came from the president of the Quebec Chamber of Commerce, who slammed the new tax holiday for favoring new projects over existing business.

Other Budget Provisions Also
Have Significant Location Ramifications

The 10-year tax holiday, though, was the only part of Quebec's new budget. Other major planks of Landry's budget that have significant business location ramifications included:

• A refundable tax credit equal to 40 percent of new employees' salaries for firms that have located operations in Montreal's Technopole area.

• Extending to 2010 (from 2009) the income tax, capital tax and payroll tax exemptions for companies that have set up operations in the tax-free Mirabel zone, which was established to stimulate usage of Montreal's Mirabel International Airport, which is located some 34 miles (54 km.) northwest of the city. Companies that qualify for the program's tax breaks but can't find a suitable building in the Mirabel zone are allowed to temporarily locate elsewhere until an appropriate facility becomes available.

• An adjustment of Quebec's tax system to conform to changes recently made in Canada's federal budget, lowering Quebec's taxable portion of capital gains to 67 per cent from 75 per cent.

• Increased deductions for home-based business expenses.

• An extension until 2005 of the two-year tax holiday and 125 percent accelerated depreciation for investments in manufacturing and purchases of computer equipment;

• A new $150 million small business loan-guarantee program that will cover up to 80 per cent of losses incurred by a lender to a maximum of $100,000. Qualifying firms must have been operating for less than three years, have total sales of less than $1 million and employ at least two non-family members.

• A $100 million grant to Innovation Papier, a trade group that promotes pulp and paper industry modernization.