Canada has become an “outlier” because it will not regulate all businesses that operate in its borders, nor assure that multinational online corporations pay their fair share toward Canada’s culture and its public services.
When the new Liberal government came into power two years ago, hopes were high that we had a chance to reverse some of the worst policies of the Harper era. Amongst those policies were those about culture writ large and, in particular, how, in the internet age, we can assure the survival and development of Canadian owned and created culture.
But, when Minister of Canadian Heritage Mélanie Joly announced there would be no taxes on Netflix, it was just what Stephen Harper had said during the last election campaign. Instead of taxes, Netflix would now contribute $500 million over five years to creating Canadian programming. What’s wrong with this you might ask.
First of all, Netflix will not be required to follow any of the rules the Canadian owned media companies, or broadcasting distribution undertakings (BDUs) — like Bell, Rogers, Shaw and Vidéotron — have to follow, such as collecting HST, paying income taxes and contributing 5 per cent of gross sales to the Canada Media Fund for new Canadian programming. These companies also have other requirements regarding Canadian content at the broadcast level.
Second, the $500 million, Netflix promised to contribute, is probably both what they were going to spend anyway and below the value of what the above contributions would amount to on an annual basis.
Netflix, while it keeps this secret, is estimated to have at least 5.2 million customers in Canada. At Netflix’s new increased average monthly fee of $10.99, this means revenues of at least $685 million per year. If it collected HST, Netflix would pay roughly $89 million per year. Also, if like Canadian broadcasters, Netflix contributed to the Canada Media Fund, 5 per cent of its gross revenues would mean around $34.5 million per year. These payments alone, without any income tax, which also should be paid, would surpass the $100 million per year Netflix is now promising to contribute.
Third, in the deal, Netflix escaped any serious commitment to French language programming, unlike the Canada Media Fund, which usually gives about one-third to francophone productions. At the same time, the amount of francophone programming available on Netflix Canada remains very small.
Of course, it is literally true that Netflix has done no legal wrong. As Corie Wright, director of Global Public Policy, stated: “Netflix follows tax laws everywhere we operate. Under Canadian law, foreign online services like Netflix aren’t required to collect and remit sales tax.” The real issue here is Canadian government policy, which has not kept up with the times.
Both the Harper and Trudeau governments have refused to update taxation legislation and enshrined the special status for foreign online multinationals as supposedly saving the middle class from taxes. It’s ironic that the present government sees no problems in changing taxation legislation for Canadian-owned small businesses but won’t do it for multinationals. And the CRTC, in 2015, waved content regulations for Bell owned Crave (and the late Shomi) so it could justify Netflix having no Canadian content regulations at all, which video-on-demand services linked to a BDU have to maintain.
And it is not just Netflix that enjoys these privileges. Google, Facebook and others escape collecting HST and paying income tax as well. The Canada Revenue Agency does not require these multinationals to do so because these services technically have no employees in Canada and the businesses that provide video services, social media or sell online advertising to Canadians are not based in Canada.
And yet, Google and Facebook alone are capturing well over 64 per cent of all internet advertising dollars spent in Canada, at the expense of Canadian newspapers and broadcasters, a key factor contributing to loss of many Canadian jobs in these sectors.
As the world changes, and more and more services are now delivered from other countries over the internet, from news, to television, to films, to music, to retail, Canada must adjust.
Dozens of countries, including the EU, Japan, Australia and New Zealand, make Netflix pay value-added sales tax, even in U.S. states such as Pennsylvania, Washington, Florida and North Carolina, as well as in Chicago. And in the EU, Netflix, Google and Facebook pay income tax as well. In Britain in 2015, Netflix paid an estimated $118 million (£70 million) in sales tax. No wonder Quebec has said it will impose sales tax on Netflix services.
Canada has become an “outlier,” not in the Malcolm Gladwell positive sense, but rather in the negative sense of a country that will not regulate all businesses that operate in its borders, nor assure that multinational online corporations pay their fair share toward Canada’s culture and its public services.
John Anderson is an independent researcher and the author of the study “An Over-the-Top Exemption: It’s Time to Fairly Tax and Regulate the New Internet Media Services” for the Canadian Centre for Policy Alternatives.