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This tax exemption for foreign companies means that they don't pay the same taxes as Canadian businesses on what they earn in Canada — Canadians for Tax Fairness
Ottawa (25 Jan. 2018) — Canadians for Tax Fairness is calling on the federal government to stop letting large foreign corporations such as Google, Netflix, Amazon, Facebook, Uber and others off the hook on paying taxes on the digital products and services they sell to Canadians.
According to Canadians for Tax Fairness, this tax exemption for foreign companies means that they don't pay the same taxes as Canadian businesses on what they earn in Canada. That hurts Canadian businesses, workers and creators. It also deprives federal and provincial governments of hundreds of millions in annual revenues—which could go to supporting better public services for all. And those lost revenues mean higher taxes for everyone else.
Exempting foreign corporations from sales tax on digital revenues costs Canadians hundreds of millions a year
The CD Howe Institute has calculated that Canadian governments lose about $100 million in GST/HST revenues just from the exemption of sales taxes for the sales of Netflix, Uber, Spotify, AirBnB, StubHub, and Amazon ebooks to Canadians. This is just the tip of the iceberg. It doesn’t include losses from other companies, nor does it include the income, payroll, property and other taxes lost from the resulting shift of business to foreign companies, some based in tax havens.
Two years ago, Fortune Magazine reported that Uber was set up as massive tax avoidance scheme with its international headquarters in the Netherlands and claims it’s a technology service provider and not a taxi company. Its model is designed to avoid sales, payroll, corporate and income taxes as well as employment and industry standards, despite the fact that its service is entirely dependent on publicly financed transportation infrastructure. In its 2017 budget, the Trudeau government pledged to make Uber rides subject to the GST but this hasn’t worked well because it makes the drivers responsible for paying the tax, and not the company. Uber’s model is being copied by other companies in all different sectors.
Canadian media and cultural industries have been especially affected with the massive shift of business and advertising dollars to on-line platforms, the largest of which are based outside of Canada. Google and Facebook collect more than $3 billion in on-line revenues from Canadian advertisers, about 7 times as much as the on-line revenues of all Canadian newspapers and TV programs, and distribute much content produced by others, but produce little themselves. Because Google and Facebook are based outside of Canada, they don’t have to charge and remit GST, sales taxes or other taxes on this business in Canada, unlike Canadian companies and producers. Just from Google and Facebook alone, this has meant a loss of $700 million annually in tax revenue, according to tax expert and Liberal candidate Marwah Rizqy.
Meanwhile, companies can deduct the costs of advertising on foreign internet media such as Google and Facebook through a provision that was originally designed to support domestic print and broadcast media, but hasn’t been updated. Eliminating this preference for large foreign internet providers would generate hundreds of millions more in additional revenues for federal and provincial governments.
Tax exemption for foreign corporations one reason Canadian media outlets closing
Local newspapers and media outlets have been closed all across Canada as they bleed advertising revenue to foreign internet giants. The decline in local media also deprives local businesses of direct advertising opportunities in their communities. Small and medium-sized businesses and main street retailers are bleeding business to foreign-based internet retail sales, much of which is coming into Canada tax free, with an estimated $1 billion in foregone taxes. This loss of local newspapers and media outlets, of Canadian businesses and main street retailers, is undermining our economies and the vitality of our communities.
Other countries require foreign-based digital businesses to pay sales taxes
Canada is now one of the few major countries around the world that hasn’t introduced changes to require foreign-based digital businesses to collect and remit sales taxes. The Organisation for Economic Cooperation and Development (OECD) has also said this should be a priority. Quebec’s Finance Minister has pledged to act, but he needs support from the federal government and other provinces.
Levelling the taxation playing field for Canadian and foreign digital businesses would not only mean billions more in revenues for Canadian governments, but it would also help support Canadian businesses, workers, creators and communities by removing this tax bias against them, especially in our vital media and cultural industries.
Let the government know the Canadian government shouldn't be penalizing Canadian businesses
Canadians for Tax Fairness is encouraging people to let Prime Minister Justin Trudeau and Finance Minister Bill Morneau know that the free ride for foreign digital companies must end. More information is available on their website.