The CRTC has issued a major new decision with implications for net neutrality, ruling that Bell and Videotron violated the Telecommunications Act by granting their own wireless television services an undue preference by exempting them from data charges. The Commission grounded the decision in net neutrality concerns, stating the Bell and Videotron services “may end up inhibiting the introduction and growth of other mobile TV services accessed over the Internet, which reduces innovation and consumer choice.”
The case arose from a complaint filed by Ben Klass, a graduate student, who noted that Bell offers a $5 per month mobile TV service that allows users to watch dozens of Bell-owned or licensed television channels for ten hours without affecting their data cap. By comparison, users accessing the same online video through a third-party service such as Netflix would be on the hook for a far more expensive data plan since all of the data usage would count against their monthly cap. Videotron was later added to the case, based on similar concerns with its mobile television service.
While some of these claims stem from the ongoing fear of marketplace disruption from Netflix, the tax fairness argument is a good one. In fact, many other countries or tax jurisdictions have either instituted sales taxes on foreign digital services or are in the process of doing so. For example, the City of Buenos Aires in Argentina last year passed a resolution forcing debit and credit card issuers to withhold three per cent from payments made to streaming service providers. The levy was specifically targeted at Netflix subscribers in the city and was reportedly designed to make local streaming services more competitive.
Interestingly, technically there is tax equivalency since Canadians are supposed to self-report the applicable sales tax in a self-assessment. In reality though, few are aware of the obligation and even fewer do so. Indeed, with an annual HST bill of $12.46 for a 12-month Netflix subscription, the missing dollars seem insignificant on an individual level.
Those individual bills can add up to millions of dollars, however, which may provide enough incentive for the federal government to conveniently forget the fall promise of “no Netflix tax” (which referred to a fee for creating Canadian content, not sales tax) and establish a system to require foreign digital operators to collect and remit sales tax on their Canadian sales.
Should the government embrace extending sales taxes to foreign services, the big question will lie in the implementation. The issue of creating a global sales tax system that requires foreign provides to register and remit sales taxes is fraught with complexity.
Registration requirements alone create new costs that some businesses may be unwilling to bear. In fact, some may simply decide to avoid or block the Canadian market altogether, leading to even more services that either decline to sell to Canadians or which increase their prices to account for the regulatory cost burden.
In order to avoid burdening small businesses, countries may set a revenue threshold before registration and collection requirements kick in. For example, Switzerland requires foreign digital service providers to register and collect an 8 per cent tax provided that they earn more than C$140,000 annually in income.
Even with a threshold to limit collection to larger businesses, the complexity associated with digital sales taxes is difficult to avoid. Will the collection apply solely to consumer purchases or also business-to-business sales? Will all digital sales – including virtual property in games or cloud computing services – be subject to a levy?
Given the ever-changing digital environment, the digital taxman may be on the way, but identifying what is subject to sales tax will be easier said than done.
The misuse of Canada’s new copyright notice-and-notice system has attracted considerable media and political attention over the past week. With revelations that some rights holders are requiring Internet providers to send notifications that misstate the law in an effort to extract payments based on unproven infringement allegations, the government has acknowledged that the notices are misleading and promised to contact providers and rights holders to stop the practice.
While the launch of the copyright system has proven to be an embarrassment for Industry Minister James Moore, my weekly technology law column (Toronto Star version, homepage version) notes that many Canadians are still left wondering whether the law applies to Internet video streaming, which has emerged as the most popular way to access online video.
As the misuse of the Canada’s copyright notice-and-notice system continues to attract attention, Industry Canada has taken the first step to try to alleviate public concern. The department has posted an advisory on the notice-and-notice system which seeks to assuage consumer concern, noting that U.S. copyright penalties do not apply in Canada and that the statutory damages cap for non-commercial infringement is C$5000. It also states:
- Receiving a notice does not necessarily mean that you have in fact infringed copyright or that you will be sued for copyright infringement.
- The Notice and Notice regime does not impose any obligations on a subscriber who receives a notice and it does not require the subscriber to contact the copyright owner or the intermediary.
This is important information that provides much needed context for the notices. As I noted last week, some Internet providers are forwarding similar information to their subscribers.
Last week I posted on how Rightscorp, a U.S.-based anti-piracy company, was using Canada’s new copyright notice-and-notice system to require Internet providers to send threats and misstatements of Canadian law in an effort to extract payments based on unproven infringement allegations. Many Canadians may be frightened into a settlement payment since they will be unaware that some of the legal information in the notice is inaccurate and that Rightscorp and BMG do not know who they are.
The revelations attracted considerable attention (I covered the issue in my weekly technology law column – Toronto Star version, homepage version), with NDP Industry Critic Peggy Nash calling on the government to close the loophole that permits false threats. Nash noted that “Canadians are receiving notices threatening them with fines thirty times higher than the law allows for allegedly downloading copyrighted material. The Conservatives are letting these companies send false legal information to Canadians in order to scare them into paying settlements for movies or music no one has even proved they’ve actually downloaded.”
With the notices escalating as a political issue, Jake Enright, Industry Minister James Moore’s spokesman, said on Friday the government would take action. Enright said that “these notices are misleading and companies cannot use them to demand money from Canadians”, adding that government officials would be contacting ISPs and rights holders to stop the practice.