Netflix deal remains shrouded in secrecy
As governments around the world grapple with how to tax online companies, the Canadian government is refusing to release more than 250 pages of communication it exchanged with a company at the heart of the debate in this country: Netflix.
The popular streaming service, valued at more than $100 billion, has been operating in Canada under circumstances that would be the envy of any company: It is not collecting sales taxes from customers and it is not paying corporate taxes on its Canadian revenue.
As speculation mounted last year about how the government would deal with Netflix, the company announced it would spend $500 million over the next five years on creating new shows in this country.
Netflix and Canadian Heritage Minister Mélanie Joly have both publicly stated there has been no quid pro quo, and that the company has not received a tax exemption.
At a February conference, she told the gathered crowd, “We were able to convince Netflix that the Canadian market was a great market. We thought that would bring money into the system in order to export great content.”
This newspaper filed information requests to the Department of Canadian Heritage under access-to-information laws, seeking copies of emails, proposals and financial analysis shared between Netflix and officials at the department.
In its reply, the department included 256 pages of documents that were redacted with a statement saying the pages are being “withheld” due to an exemption that allows the government to refuse access to any records that are deemed to be restricted.
The department said negotiations with Netflix over the company ’s investment were conducted under the Investment Canada Act, which automatically classifies all information submitted as part of the negotiations as “privileged.”
(The act, which governs foreign direct investment in Canada of more than $350 million, is used to evaluate foreign investment in Canada. It uses set criteria to determine whether proposed investment would be a net benefit to Canadians or whether the investment could be a threat to national security.)
Negotiating under the act automatically shrouds the Netflix investment in a cloak of secrecy, which is a major problem according to Elliott Anderson, director of public policy, research and communications at the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA).
“Traditional broadcasters like Bell and Corus have to submit to regulatory authorities, where we can get a lot of detail about their operations and how they are justifying their spending,” Anderson said.
“To the extent that Netflix has agreed to any spending commitments, we don’t know what they are beyond what Netflix tells us because under the Investment Canada Act all of that is shrouded in secrecy. It’s concerning.”
Netflix already has a heavy development presence in Canada, as it is involved in producing or distributing hit shows such as Riverdale, A Series of Unfortunate Events, Orphan Black and The 100, which are all filmed here. The company has said its $500 million will be in addition to pre-existing plans.
In a statement, a spokeswoman for the Department of Heritage said the government’s negotiations with Netflix will see the company set up a Canadian production office to oversee the projects it is filming here. That production office “will be required to comply with any GST rules that would apply to its production operations in Canada.”
The statement did not address issues pertaining to Netflix’s streaming service revenues. The statement said responsibility for that issue lies with the Department of Finance.
Finance Minister Bill Morneau, who has previously said Ottawa has no intention of imposing taxes on Netflix, this week addressed the government’s stance at a meeting of the G20 in Buenos Aires.
He told the Bloomberg News agency that the federal government is pondering the issue of taxing digital firms to determine what, if anything, it should do.
“We are looking at it carefully, because we need to understand what, if anything, happens to our tax base, based on a changing of the economy towards a different business model,” Morneau said.
“We are studying the issue with an intent to have a point of view.”
The issue of how to tax businesses such as Netflix and Google, which exist online but conduct business in jurisdictions all over the world, has become a key one for governments around the world.
More than 110 governments have identified the issue as a concern and have agreed to work together to form international consensus on how to deal with the issue by 2020.
During question period Thursday, Morneau confirmed that Canada has agreed to work with other governments toward the 2020 deadline.
The $500 million Netflix plans to spend in Canada over five years is far less than the $7 billion to $8 billion the company plans to spend globally in 2018 alone on creating new TV shows and movies.
Allowing Netflix, and other services, such as Google/YouTube and Facebook, to operate in Canada without collecting or paying taxes has been met with criticism, according to more documents obtained by the Citizen.
“Regulation of Canadian broadcasting has not kept pace with changes in technology,” reads an open letter sent on behalf of 270 members of Canada’s film and television industry, which was sent to Joly’s office after news emerged last year that Netflix would, for the time being, retain its tax status.
“These (online) distributors have used the internet to sidestep Canadian sovereignty. We must bring these foreign (companies) within the Canadian broadcasting system no matter how difficult. We must regulate them just as we regulate domestic ( broadcasters).”
The letter was signed by hundreds of TV and filmmakers from across the country.
Another email sent to the minister’s office questioned why the company is allowed to avoid paying and collecting taxes when it’s only available to Canadians who have the disposable income to afford the service and have access to high-speed internet connections.
“We need details. Many Canadians do not have access to Netflix or any of the other specialty channels and my phone and internet/cable costs are already astronomical so unless these programs are available on the regular TV channels, I will never have access to them,” read one letter sent to Joly.
The identity of the sender was omitted as per Canadian privacy laws. “I refuse to pay $10.00 am (sic) month to a foreign company to get Canadian TV content.”
Some letters of support were sent to Joly’s office after her announcement regarding Netflix. However, a majority of the emails secured by the Citizen showing support for the agreement were sent by Canadian TV and film creators, asking how they could pitch new shows to Netflix and secure some of the company’s promised spending.
The company is fighting to maintain its market position and fend off newcomers such as Disney, which has announced it is in the midst of creating its own streaming service, which would distance the company from Netflix.
According to documents obtained from the Office of the Commissioner of Lobbying of Canada, there have been several meetings between representatives from Netflix and federal government officials over the past year.
The meetings with government were extensive and included representatives from the Prime Minister’s Office, Canadian Heritage, the Canadian Radio Television and Telecommunications Commission and numerous other federal departments.