It’s time to level the digital playing field
Prime Minister Justin Trudeau met with a score of Silicon Valley CEOs last Thursday in San Francisco, including Amazon CEO Jeff Bezos, in a bid to attract them to invest in Canada. While foreign investment promotion can be considered an important priority, it shouldn’t come at the expense of existing Canadian businesses and workers.
In particular, we should be concerned if Trudeau promised these CEOs that Canada would retain tax biases that benefit foreign digital corporations — including Facebook, Google, Netflix and Uber — at the expense of Canadian-based businesses and workers.
And if the upcoming federal budget tabled doesn’t include provisions to eliminate these tax biases, we should be very concerned.
Our tax legislation requires Canadianbased suppliers of goods and services to collect and remit GST/HST and other sales taxes on the goods and services they sell to Canadians. However, foreignbased suppliers of digital products and services to Canadians are under no obligation to collect and remit these taxes. Individual consumers are supposed to voluntarily pay these taxes, but very few know or do so.
As more and more sectors — including transportation, accommodation and others — take advantage of digital platforms, the revenues lost through this loophole escalate. But more important than the loss of revenues are the impacts on Canadian companies, workers and our communities. Making matters worse is that many of these digital giants channel much of their revenues through tax havens, so they pay very low rates of taxes worldwide.
This isn’t just a matter of not paying GST on Netflix.
The advertising revenue of Canadian newspapers and media outlets has been decimated with the massive shift of advertising dollars to Google and Facebook, which now receive $3 billion in online advertising dollars from Canadians, 10 times the digital advertising revenues of Canadian daily newspapers.
While Canadian media outlets must collect and remit GST and other sales taxes on their ad sales to Canadians, foreign-based operators don’t have to. Canadian companies can also deduct the costs of advertising on foreign internet media, such as Google and Facebook, through a provision designed to support domestic print and broadcast media but that hasn’t been updated to reflect our new digital world.
To add insult to injury, these digital giants produce little or no media content on their own, but merely recycle content produced by others for profit. It’s no wonder local newspapers and media outlets are closing across Canada, throwing hundreds out of work, as they bleed revenue to foreign digital giants.
The decline in local newspapers also deprives local businesses of direct advertising opportunities in their communities, in turn contributing to the losses by main street businesses to online shopping, much of which arrives tax and dutyfree.
Canada is now one of the few major countries 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) accorded it a top priority in its 2015 Base Erosion and Profit Shifting (BEPS) Action plan and last year set out International VAT/GST Guidelines for doing so.
These loopholes could be eliminated with straightforward legislative changes to reflect new digital realities, as the C.D. Howe Institute and others have pointed out.
Canada should also support the establishment of a common consolidated international corporate tax base so multinational corporations are taxed on the economic substance of their activities in each jurisdiction, as the European Union is doing and as proposed in a private members bill by MP Murray Rankin.
Our governments lose more than a billion dollars in annual revenues from these tax loopholes, but what’s much harder to put a value on is the deterioration in the vitality of our local communities, cultural life and democratic dialogue as local businesses and news outlets shut down.
These digital giants have very well-connected lobbyists in Ottawa and may charm the government with their aura of “innovation” and willingness to engage in joint projects. But the digital giants are also coming under increasing criticism for their monopolistic and negative impacts from highly reputable voices, including The Economist magazine and Bank of Canada senior deputy governor Carolyn Wilkins.
Promotion of Canada as a friendly place for foreign tech companies may be a central part of the federal government’s economic plans, but it shouldn’t come with unfair and outdated tax biases that benefit foreign digital corporations at the expense of Canadian businesses, workers and communities.