Canada ‘falling behind’ countries with Netflix tax: think tank

The Canadian Centre for Policy Alternatives says Canada should follow the example of the European Union and countries like New Zealand and Australia in requiring over-the-top (OTT) services to pay taxes in Canada. If Netflix Inc. were to pay a 13-per-cent HST tax, that would amount to “some $62.4 to $90.48 million per year in value-added taxes,” the centre’s June 21 report said. Canada is “missing out on millions of dollars in uncollected income and value-added taxes from OTTs — money that might go toward producing Canadian content and supporting the cultural industry through this technological transition,” it argued. “In this respect, we have fallen behind countries such as Australia, New Zealand, and the European Union where governments have woken up to the need to rein in the tax-avoidance tactics of major foreign-based OTTs.” The EU, for instance, has moved to apply its value-added tax (VAT), to “telecommunications, broadcasting, and electronic services,” basing the tax on the country in which the customer is located, a change from its previous policy of taxing sales across Europe according to the country in which the company was headquartered. “Along with the European Union, New Zealand, Australia, Norway, South Korea, Japan, Switzerland, and South Africa have introduced measures to begin collecting GST or HST equivalents (VATs) on digital online services delivered from outside the country,” the report said. For instance, in New Zealand, the GST applies to all digital services, while Australia will begin applying its 10 per cent GST “to the cost of Netflix, music downloads, and e-books on digital products bought overseas” in 2017. In contrast, the report argued, in Canada both the CRTC and the federal government have “systematically avoided the OTT issue — even when opportunities to regulate have presented themselves and studies have urged action.” When the digital media exemption order (DMEO) was introduced in 1999, the report argued, one “could perhaps understand the CRTC’s caution not to regulate in the early stages of this new technology, but it is hard to understand how, given evidence of the unequal playing field it created, and in spite of successive hearings and studies on this issue, the exemption order has become a permanent fixture of the Canadian media scene.” In its wide-ranging Let’s Talk TV review of the Canadian television system — which was marked by conflict between the regulator and streaming services that refused to disclose subscriber information — the CRTC declined to impose new requirements on OTT services. The previous Conservative government opposed imposing a “Netflix tax,” while current Heritage Minister Mélanie Joly has said the government isn’t considering such a tax as part of its ongoing review of Canadian content in a digital age. At the same time, the report said, the Trans-Pacific Partnership (TPP) agreement includes measures that, according to some interpretations, could make it difficult to impose such a tax. It cited a carve-out stipulating that Canada can “adopt or maintain any measure that affects cultural industries and that has the objective of supporting, directly or indirectly, the creation, development or accessibility of Canadian artistic expression or content” which does not apply to “discriminatory requirements on services suppliers or investors to make financial contributions for Canadian content development” or “measures restricting the access to on-line foreign audiovisual content.” The Canadian government has signed, but not ratified, the agreement. The report recommended that in Canada, both federal and provincial government collect sales taxes from digital services, while “same e-commerce companies currently avoiding collecting and remitting value-added taxes on Canadian sales should pay income tax on monies they earn from products or services they sell or rent in Canada,” a recommendation that would apply to both services in the cultural sector and companies like Amazon.com Inc. and AirBnB Inc. The report also suggested that the CRTC eliminate the DMEO — which exempts online services from the same regulations as traditional broadcasters — and make OTT services comply with broadcast regulations and Canadian content rules. “OTT companies that act as broadcasting distribution undertakings (BDUs) with more than 2,000 subscribers should contribute 5% of their gross revenues from broadcasting-related activities to the creation of Canadian programming through publicly or independently administered funds as other BDUs do,” it added. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Charelle Evelyn at cevelyn@thewirereport.ca

Canada ‘falling behind’ countries with Netflix tax: think tank

News | July 4, 2016

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