Four years ago, then-prime minister Stephen Harper used the first week of the 2015 federal election campaign to pledge that if re-elected his government would not institute a Netflix tax. My Globe and Mail op-ed notes that the Liberals responded with a no Netflix tax promise of their own, which became government policy when Justin Trudeau was elected a few months later. Yet as Canada heads toward another election this fall, Canadian Heritage Minister Pablo Rodriguez and his party seem ready to place the spotlight on Netflix taxes once again. Only this time, the government will call out opposition parties that do not commit to new Internet taxes.
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Making Sense of the Canadian Digital Tax Debate, Part 2: Mandated Canadian Content Contributions aka a “Netflix Tax”
The series on the Canadian digital tax debate continues with an examination of calls for mandated contributions by Internet video services to support the creation of Canadian content, frequently referred to as a “Netflix tax” (earlier post on digital sales tax). The Netflix tax is perhaps the most politicized digital tax issue, with both the Conservatives and Liberals opposing such a tax during the last federal election. Despite the opposition, the issue continues to resurface as it is regularly raised by cultural groups and was part of the CRTC’s report on the future of broadcast regulation released in the spring.
Proponents of a mandated Netflix contribution typically rely on three arguments: (i) failure to impose fees and regulation on foreign providers represents an “existential threat” to Canadian creative industries since they argue it will lead to reduced spending on production in Canada; (ii) there is a need to “level playing field” for Canadian services competing against foreign providers; and (iii) Europe is moving toward Netflix regulation and Canada should too.
Making Sense of the Canadian Digital Tax Debate, Part 1: Digital Sales Taxes
Digital tax has emerged as one of the most contentious Canadian digital issues with groups advocating for a wide range of new enforcement or policy measures including digital sales tax, taxes on online video services, income taxes on digital companies, tax measures in support of media organizations, Internet access taxes, and digital device taxes. Unfortunately, the debate is often muddled by the use of the same terms, creating considerable confusion. For example, references to “Netflix taxes” have been used with regard to digital sales tax on Netflix, mandated Canadian content contributions for Internet services such as Netflix, and income taxes payable by Netflix.
This blog series will attempt to unpack digital tax debate. The series begins with digital sales taxes, which was back in the news earlier this month when Finance Minister Bill Morneau confirmed that Canada is awaiting an international agreement on digital sales taxes before implementing any domestic reforms. Morneau indicated the government would support a quick resolution of the issue – the current deadline is 2020 – but that a provincial digital sales tax in Quebec will not spark a matching federal tax until the global issues are resolved.
Quebec Digital Sales Tax Plan Shows It Is Easier Said Than Done
Government officials and cultural groups in Quebec have been banging the drum for much of the past year for the imposition of digital sales taxes on services such as Netflix. The debate is often framed around the notion that Netflix and other Internet companies should be collecting sales tax like any other service provider. Supporters argue that other countries have begun to levy sales taxes on digital services and Canada should do the same.
My Globe and Mail op-ed notes the federal government has sent mixed signals to date, with Prime Minister Justin Trudeau rejecting new taxes on the grounds that Canadians “pay enough for the Internet”, Canadian Heritage Minister Mélanie Joly seemingly keeping the door open to new taxes, and Finance Minister Bill Morneau committing to studying the issue while international standards develop.
Trudeau Puts An End to the Netflix and ISP Tax Debate: “Consumers…Pay Enough for Their Internet”
For the past two years, the prospect of creating a Netflix tax or Internet tax has been the digital policy issue that would not die in Canada. The Standing Committee on Canadian Heritage called for an Internet tax last June, the province of Quebec remains anxious to pay digital sales taxes (there is nothing stopping them from doing so now), and many creator groups continue to the call for mandated contributions on Netflix to “level the playing the field” (the level playing field argument is misleading). The uncertainty surrounding Netflix and ISP taxes has not been helped by the reopening of the issue at the CRTC after the release of the government’s digital Cancon strategy and Canadian Heritage Minister Melanie Joly’s occasionally leaving the door open to the possibility.