By Canadian Press

Documents show Liberals took eyes ways to tax Netflix like Quebec plans to do

Mar 28, 2018 | 12:45 PM

OTTAWA — Federal officials have taken a close look at how the government can make online services like Netflix and Amazon voluntarily collect sales tax, similar to the model Quebec plans to bring in next year.

Pages of briefing notes provided to Heritage Minister Melanie Joly over the course of 2017 detail how certain governments around the world have required foreign-based streaming services to register with the government in order to collect and pay taxes, rather than imposing new taxes on the services.

The notes, obtained by The Canadian Press under the Access to Information Act, say countries should make it as simple as possible for companies to register with national tax offices to collect revenue on which they are currently missing out.

Quebec’s Liberal government announced in its budget Tuesday that it would do exactly that beginning next year to put provincial sales tax on Netflix and any purchases from Amazon. The provincial government believes it could earn about $154.5 million over the next five years from the measure.

The cost of a Netflix subscription has gone up in two of the jurisdictions reviewed in the documents to Joly — Japan and Australia — after the company added a sales tax to its fees. 

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The NDP called on the federal government Wednesday to force Netflix to collect and remit taxes just as it does in jurisdictions like the European Union.

“The government needs to modernize its laws and put everyone on the same footing. It’s just common sense,” NDP parliamentary leader Guy Caron said in French during the daily question period.

“The reality is that taxpayers would pay these taxes,” Prime Minister Justin Trudeau fired back. Trudeau was adamant the Liberals would not increase taxes for Canadians “who are already paying enough for their digital subscriptions.”

Trudeau’s position on the tax issue has not been an easy sell to Quebec Liberal MPs who have been under pressure from their constituents to reverse the party’s stand.

Indeed, Netflix has been a lightning rod of discontent in Quebec ever since it agreed to invest $500 million over five years in Canada as part of the federal government’s cultural policy, which included a promise to set up a Canadian production facility. 

Netflix also committed to spend $25 million to develop French-language content, but the lack of a contractual obligation to actually go ahead and produce it came under heavy scrutiny in Quebec, where Joly and her plan were pilloried and dismissed as naive.

Foreign-based streaming services without a physical presence in Canada don’t have to collect or remit federal or provincial sales taxes. Instead, it is up to consumers to pay the sales tax to tax collectors, but in reality this rarely happens.

Government lawyers have issued dozens of pages of legal opinions about placing a levy or sales tax on Netflix. The contents of those documents that went to Joly have been blacked out with officials saying they cannot be publicly released because the information is subject to solicitor-client privilege.

Last week, Finance Minister Bill Morneau, who is responsible for tax changes, said the Liberals want to ensure online firms “pay the appropriate level of tax,” noting a 2020 deadline Canada and other G7 nations have set for a tax regime. Morneau’s office pointed to those comments when asked for reaction to the Quebec budget and the briefing notes to Joly.

The documents to Joly don’t reference how much different governments have earned since imposing the online tax regime.

A June 2016 briefing note raised concerns about the idea, saying “little can be done to enforce a sales tax regime, even when a foreign-based company has registered with the relevant tax authority.”

That same note also questioned whether other countries, particularly the United States, would help Canada recoup the uncollected sales tax.

— Follow @jpress on Twitter.

Jordan Press, The Canadian Press