Canada Seeks Digital Tax On Google, Netflix And Other Global Web Giants

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Facing a growing budget deficit and the cries from local businesses about fairness, the Canadian government is proposing a new digital tax on foreign web giants such as Netflix, Facebook, Amazon and Google.

The digital tax is part of a broader five-year, $3.4 billion levy that was unveiled in parliament Monday (Nov. 30) as the country’s finance minister revealed the impact COVID-19 has had on the economy.

“Canadians want a tax system that is fair, where everyone pays their fair share, so the government has the resources it needs to invest in people and keep our economy strong,” said Finance Minister and Deputy Prime Minister Chrystia Freeland. “That is why we are moving ahead with implementing GST/HST (Goods and Services Tax and Harmonized Sales Tax) on multinational digital giants.”

The so-called “Netflix Tax” could take effect as early as July 1, 2021 and is projected to bring in more than $1.2 billion over a five-year period. It would be collected from customers and remitted by the digital service providers. It would replace and update the present “honor system” under which residents are supposed to pay their fair portion of the federal and local sales taxes on any goods or services they consume.

An Outdated System

Two weeks ago, the country’s lax system drew criticism from Canada’s auditor general, who told members of parliament it was costing the country at least $247 million a year, and had not kept pace with the fast-growing digital economy.

“Under current rules, foreign-based digital businesses can sell their goods and services to Canadians without charging the (GST/HST), which puts the burden on Canadian consumers to remit the sales tax,” Auditor General Karen Hogan said.  “This gives foreign-based digital corporations an unfair advantage, and undercuts the competitiveness of Canadian companies. It also deprives the government of tax revenues that could be used to better the lives of everyone.”

The proposal comes at a time when digital commerce is soaring, often at the expense of traditional, locally-owned  brick-and-mortar businesses. To that point, the new digital tax plan would also take on providers of free online services, like Facebook and Google, and start taxing short-term online real estate rentals, such as those provided by Airbnb.

A Global Fight

The Canadian proposal is not happening in a vacuum, as policymakers in Europe and the U.K. are currently considering a global digital tax measure that would impact many of the very same businesses.

From the U.K.’s standpoint, a global digital tax on “Big Tech” is the way to go, and it has been working with other European countries toward a solution with the goal of reaching a year-end accord.

However, those talks broke down in June after U.S. Treasury Secretary Steve Mnuchin withdrew from negotiations, citing slow progress in a process that involved 140 countries and the OECD.

For its part, Netflix said it was already collecting taxes in at least two Canadian provinces since 2019 and was open to further dialogue.

“Netflix is committed to being a good partner to Canada and we will work collaboratively with the federal government on this issue, as we have previously in Quebec and Saskatchewan,” the company said.

Canadian media reports also quoted Google as saying it was committed to comprehensive tax reform for multinational businesses.

“While we are still reviewing [the] changes around GST/HST, we will work with the Government of Canada to comply with local tax law, as we do in jurisdictions around the world,” Google said.

Regardless of how and when Canada’s tax proposal ultimately takes form, experts say any increase in corporate costs will be offset by customers through higher prices.

 

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