The federal government is letting large foreign corporations such as Google, Netflix, Amazon, Facebook, Uber and others off the hook on paying taxes on the digital products and services they sell to Canadians. Meanwhile the Canadian companies in the business have to pay the Canadian sales and corporate income taxes.
This is a very unfair to Canadian broadcasters, newspapers, and cultural industries who are struggling to compete. Canadian workers are losing jobs, opportunities for content creators, actors and cultural workers are drying up and communities who are paying a high price as local newspapers and broadcasters are forced to fold.
Tell Finance Minister Bill Morneau and his colleagues that they should immediately eliminate this unfair competition against Canadian businesses,workers and creators in the coming budget.
Not only is this tax exemption for foreign companies highly unfair for Canadian businesses, workers and creators, , but it also deprives federal and provincial governments of hundreds of millions in annual revenues—which could go to supporting better public services for all. It is also unfair to the rest of Canadians; those lost revenues mean higher taxes for everyone else.
The CD Howe Institute has calculated that Canadian governments lose about $100 million in GST/HST revenues just from the exemption of sales taxes for the sales of Netflix, Uber, Spotify, AirBnB, StubHub and Amazon ebooks to Canadians. And this is just the tip of the iceberg. It doesn’t include losses from other companies, nor does it include the income, payroll, property and other taxes lost from resulting shift of business to foreign companies, some based in tax havens.
Uber was set up as massive tax avoidance scheme with its international headquarters in the Netherlands and claims it’s a technology service provider and not a taxi company. Its model is designed to avoid sales, payroll, corporate and income taxes as well as employment and industry standards, despite the fact that its service is entirely dependent on publicly-financed transportation infrastructure. The Trudeau government’s pledged to make Uber rides subject to the GST in its 2017 Budget, but this hasn’t worked well because it makes the drives responsible for paying the tax, and not on the company. Uber’s model is being copied by other companies in all different sectors.
Canadian media and cultural industries have been especially affected with the massive shift of business and advertising dollars to on-line platforms, the largest of which are based outside of Canada. Google and Facebook collect more than $3 billion in on-line revenues from Canadian advertisers, about seven times as much as the on-line revenues of all Canadian newspapers and TV programs, and distribute much content produced by others, but produce little themselves. Because Google and Facebook are based outside of Canada, they don’t have to charge and remit GST, sales taxes or other taxes on this business in Canada, unlike Canadian companies and producers. Just from Google and Facebook alone, this has meant a loss of $700 million annually in tax revenue, according to tax expert and Liberal candidate Marwah Rizqy.
Meanwhile, companies can deduct the costs of advertising on foreign internet media such as Google and Facebook through a provision that was originally designed to support domestic print and broadcast media, but hasn’t been updated. Eliminating this preference for large foreign internet providers would generate hundreds of millions more in additional revenues for federal and provincial governments.
Local newspapers and media outlets have been closed all across Canada as they bleed advertising revenue to foreign internet giants. The decline in local media also deprives local businesses of direct advertising opportunities in their communities. Small and medium sized businesses and main street retailers are bleeding business to foreign-based internet retail sales, much of which is coming into Canada tax free, with an estimated $1 billion in foregone taxes. This loss of local newspapers and media outlets, of Canadian businesses and main street retailers is undermining our economies and the vitality of our communities.
Canada is now one of the few major countries around the world that hasn’t introduced changes to require foreign-based digital businesses to collect and remit sales taxes. The Organization for Economic Cooperation and Development (OECD) has also said this should be a priority. Quebec’s Finance Minister has pledged to act, but he needs support from the federal government and other provinces. We also need to eliminate other tax rules and exemptions that favour large foreign internet-based corporations and that undermine Canadian employers and workers.
- Levelling the digital tax playing field would not only mean billions more in revenues for Canadian governments, but it would also help support Canadian businesses, workers, creators and communities by removing this tax bias against them, especially in our vital media and cultural industries.
Tell Finance Minister Bill Morneau and his colleagues that they should immediately eliminate this unfair competition against Canadian businesses and workers in his coming budget.
- AnAnderson, John An Over-the-Top Exemption, Canadian Centre for Policy Alternatives, June 2016.
- Canadians for Tax Fairness Level the Digital Playing Field
- Coalition for Culture and Media website.
- O’Keefe, Brian and Marty Jones, How Uber plays the tax shell game, Fortune magazine, October 2015.
- Organization for Economic Cooperation and Development, Addressing the Tax Challenges of the Digital Economy, OECD/G20 Base Erosion and Profit Shifting Project Action 1: 2015 Final Report, October, 2015.
- Organization for Economic Cooperation and Development, International VAT/GST Guidelines, OECD 2017.
- Public Policy Forum, The Shattered Mirror: New Democracy and Trust in the Digital Age, January 2017.
- Toronto Star, Ottawa should force Google and Facebook to pay their fair share, editorial January 19, 2018.
- Wyonch, Rosalie Bits, Bytes and Taxes: VAT and the Digital Economy in Canada, C.D. Howe Institute, August 2017.