The Canada Revenue Agency has obtained a federal court order requiring PayPal to hand over years of transactional information from all business accounts in Canada. The scope of the order is incredibly broad, covering any business account holder who sent or received a payment over a nearly four year period from January 1, 2014 to November 10, 2017. The information to be disclosed includes:
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California Internet tax bill breakdown by Stephanie Robogeisha (CC BY-NC-SA 2.0) https://flic.kr/p/9YoqbP
Digital Tax
Quebec Digital Sales Tax Bill Demonstrates the Complications That Come With Implementing a “Netflix Tax”
The public policy battle over a digital sales tax to cover services such as Netflix continues in Canada with the introduction last week of a Quebec private members bill that would require the collection and remission of provincial sales tax by “persons with a significant online presence.” I’ve already written extensively about the longstanding policy work on digital sales taxes, the misleading claims about a level playing field, and how Canadian subscribers can pay the sales tax on Netflix today if they so choose. While there is an inevitably about digital sales taxes – it will come once global standards are sorted out – some still want the tax now without much regard for the challenges of implementation.
Race to the Bottom: Why Government Tax Credits For Film and TV Production Don’t Pay
The Nova Scotia government has been embroiled in a high profile controversy for the past week following its decision to slash tax credits available to film and television production in the province. The decision sparked an immediate backlash from the industry, which staged a major protest last Wednesday across from the legislature in Halifax.
While the government’s approach is certainly open to criticism – abruptly cutting the tax credits without warning may force the cancellation of long-planned productions this summer – the larger question of whether it should provide massive tax relief to the film and television industry is an important one. Eliminating or cutting the programs is politically difficult given the star power associated with film and television production, yet a growing number of studies have found that film and television tax credits do not deliver much bang for the buck.
My weekly technology law column (Toronto Star version, homepage version) notes that the widespread use of film and television production tax subsidies dates back more than two decades as states and provinces used them to lure productions with the promise of new jobs and increased economic activity. The proliferation of subsidies and tax credits created a race to the bottom, where ever-increasing incentives were required to distinguish one province or state from the other.
Is the Digital Taxman Headed to Canada?
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.
CRA Cracks Down on eBay Seller
The Canada Revenue Agency has fined a B.C. man $68,000 for failing to report sales on eBay.