Taxing foreign tech firms in fashion on campaign trail

What a difference four years makes.

On the eve of the 2015 election campaign, then-prime minister Stephen Harper posted a video online revealing that he loved watching the TV series Breaking Bad, which had gained masses of new viewers on Netflix, and vowed that a re-elected Conservative government would oppose any “Netflix tax” on streaming video services.

At the time, Harper was attacking a proposal that had not been formally floated by his opponents, but both the Liberals and the NDP nevertheless scrambled to assure voters that they had no plans for a Netflix tax either.

Fast forward four years, and taxes on Netflix and its big-tech brethren are suddenly in fashion, part of a much broader shift in attitudes toward U.S. tech giants that has emerged over the past 18 months.

On the weekend, the Liberal party announced a plan to “make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada,” according to the party’s platform.

The Liberals will impose a three-per-cent tax on the Canadian income of companies in “targeted advertising services and digital intermediation services” and it would apply to companies that have at least $1 billion in worldwide revenue, and $40 million in Canadian revenue.

New Democrats are promising something similar, with a campaign commitment to “step up to make sure that Netflix, Facebook, Google, and other digital media companies play by the same rules as Canadian broadcasters. That means paying taxes, supporting Canadian content in both official languages, and taking responsibility for what appears on their platforms, just like other media outlets.”

On the campaign trail Monday, Conservative Leader Andrew Scheer demurred on details, but indicated that a similar proposal was coming soon from his party.

“It will be aimed at making sure that massively profitable companies who collect hundreds of millions of dollars worth of revenue out of the Canadian economy pay their fair share just like every other Canadian company,” Scheer said.

Scheer said that the Netflix tax in 2015 was a bad idea because it was a tax on consumers, but this is different because it’s aimed at taxing massively profitable companies.

The appetite to tax foreign tech companies has gained steam in the wake of the Cambridge Analytica scandal, in which it was revealed that data from Facebook had been shared without user consent and used to influence political contests in the U.S. and U.K.

“Definitely with the tech giants, there’s been a techlash,” said Dan Ciuriak, a senior fellow focused on innovation, intellectual property and trade with the Centre for International Governance Innovation. “Across the board, you’ve definitely had a reaction against the Silicon Valley tech giants as the golden boys of the brave new world.”

Canada isn’t the first country to dabble with new tax policy for tech giants like Google and Facebook.

Earlier this year, France launched a policy to impose a three-per-cent tax on tech companies that have revenues of at least 750 million euros, if 25 million euros of that revenue is generated in France.

Spain is pursing a similar tax, and the U.K. is reportedly also looking at the same idea.

Ciuriak said there’s a growing recognition that government policy, including taxation, needs to catch up with the reality of massive, data-driven multinational firms.

“As the economy shifts online, taxes must follow, because there are still many, many public goods that are part of the economic infrastructure, that support the activities from which these tech firms profit,” Ciuriak said. “If you have got a major set of entities that are not contributing to the financing of your public infrastructure, that’s clearly not fair.”

The conversation about the role of giant technology companies in society has evolved so far since the days of the “Netflix tax” that even the Information Technology Association of Canada (ITAC) isn’t categorically opposed to the idea of a big tech tax, even though ITAC’S membership includes Google, Facebook, Amazon Web Services (AWS), Apple.

Angela Mondou, president and CEO of ITAC, said ITAC may undertake a study to assess how the Liberals’ tax proposal would reverberate out into the broader tech supply chain within Canada, and how it might affect the innovation economy.

Mondou said she worries about the knock-on effects of the policy.

“We have AWS, they’re hiring thousands of people in this nation. They’re opening up plants out west,” Mondou said.

“At this point I don’t know of any party or anyone in this nation who can answer the question of what the impact to the supply chain of that tech would be. Would there be an undermining of our startups and innovation in Canada? Or does it just make sense to lop on that tax at the top?”