BANFF – Okay, how do you know you've got a great tax accountant? Well, it's obvious – she's got a loophole named after her!
Yup, the title "Digital Content Taxation: Levelling the Playing Field with Foreign Competition" didn't announce well as a barn-burning session. However, I wasn't expecting jokes about tax lawyers deducting ExLax as a moving expense either.
There was a principle involved.
Bernard Lord, president and CEO of the Canadian Wireless Telecommunications Association (and former Premier of New Brunswick), has a bee in his bonnet: Foreign digital content providers are not required to register and collect Canadian GST/HST, and thus have a 13% competitive advantage over our domestic colleagues. (Taking the subscriber numbers we reported on earlier this week for Netflix alone, and surmising it is now raking in around $570 million in revenue, that’s about $74 million worth of HST not being applied.)
Moreover, Canadians spend $9 million a year on indigenous digital content, but $500 million on foreign digital content. So how do we ensure that we fix this and get to a place of taxation parity?
Because right now, that huge competitive advantage flows directly, and only, to companies outside our borders. Surely, anyone can see that we have to assert cross border tax integrity.
After all, even the OECD states very clearly that internationally traded goods and services "should be taxed according to the rules of the consuming jurisdiction.”
Canada wouldn't be the first company to assert that sovereign right – Norway applies a 25% tax, South Korea goes with a 10% tax, Japan imposes an 18% tax, and New Zealand insists on a 15% tax.
So what the heck is wrong with us?
True, we already tax hard goods at the border, but as soft goods and e-commerce become more prevalent, how does Canada capture the lost taxes associated with digitally delivered content?
Well, we're afraid of public reaction to anything that looks, sounds or smells like a new tax. And there's political and public confusion between what Harper's crew coined as a "Netflix tax" (which is really a contribution to domestic content creation) and a true, red-blooded sales tax.
Plus, for what it's worth, what we’re talking about here would be a broad tax applied not only to screen media but to all non-Canadian e-commerce.
Voters won't like that.
So, yikes, what to do?
Well, let's all get together as producers, broadcasters, telcos, and public servants and have "united advocacy.” We can band together and tell folks that this isn't regulation of the Internet but just a regular old sales tax.
Oh, and if we wrap it up pretty and say that it could provide additional government support for cultural industries – that would be a good hook.
Not so fast Bernie…
There are many creators and producers that might see such a tactic as providing an "out" for distributors and broadcasters looking for something/someone else to fund and contribute to Canadian content.
What guarantee could there be that these new tax revenues would flow to a media/cultural fund?
Jay Thomson of the CMPA put it most elegantly, as presenting a "danger since it could be perceived to relieve Canadian players from their obligations and undermine the social contract that Minister Joly holds dear".
And, let's get a grip, Netflix has more subscribers worldwide than Canada has people! Will a news sales tax on Netflix, Amazon, and Apple really "level the playing field"?
That's not clear to me.
What is clear to is that Canada might amount to a revenue rounding error if these colossi ever got together. One unnamed Canadian media sage offered a personal view that this is just the tip of a much bigger public policy iceberg and that we "needed to start bringing a digital perspective to these issues… because digital can also make it easier to tax the correct targets… technology brings efficiencies… after all if my kids can get summer job tax rebates from CRA without doing anything, why can't we use technology to segregate tax matters here… (sigh) you know banks and credit card companies know exactly where business is being done.”
Broad taxation measures are tried and true analog-era tools, but they are also easily portrayed as tax disincentives and blunt instruments that discourage innovation.
Richard Stursberg, "Friend of the Industry" (and former CBC and Shaw executive) brought some helpful metrics to the table.
From his perspective, there's about $12 billion per year in ad sales happening in Canada and about $4 billion is in digital now, so if 75% of that digital treasure is going to the U.S., that's about $3 billion lost. "If we could repatriate 10% of that $3 billion, that's more than the entire CMF!", said Stursberg.
But let's return to the Honourable Mélanie Joly.
Minister Joly promised that there would be no "Netflix tax".
In doing so she embraced the identical language of the ousted Harper government. Furthermore, by giving "liberal" credence to that negative tax symbolism (the fear-mongering success of Tory PR firms) – she has flubbed the political opportunity to keep that door ajar.
She has now lost any leverage to make a case that it's not a tax we're considering, but a "social contract" contribution to Canadian content and that’s even before her gigantic consultation process was revved-up in which she blew that tire.
So I'm not sure you've got much of a shot here Mr. Lord with anything like a consumption tax. Our Minister has tied her political hands by parroting the loathed tax words of defeated Harperites.
But that's not all… Joly risks going further down that obfuscation rabbit hole.
Just as the Harper gang intentionally muddled the management of foreign/domestic media content with taxation, she's sounding eerily similar to the Regressive Conservatives in banging that same old pot of consumerism.
News flash – consumers are nowhere to be found in The Broadcasting Act. There is no reference or asterisk or footnote pertaining to a consumer focus. Sure, that didn't stop Harper from charging the CRTC with a consumer fixation.
But that sleight of hand is not rooted in relevant public policy.
Sometime soon Minister Joly needs to compound her charm offensive (too often punctuated by her query "Well what would you do?") with a grasp of the leadership toolkit at her disposal.
On point… The CRTC is vital. Anything wrong with it is a result of policy distortion and the lack of political will. The Commission has the comprehensive jurisdiction to act and it's not as much about regulation being broken, as about the rules not being enforced.
The Broadcasting Act provides for the power of policy direction, be prepared to use it. The Act is also technology neutral, that's a very good thing, so don't get trapped in the technological determinist cage.
(Well, somewhat on subject and on a lighter note, how do you define an extroverted tax accountant? That's someone who stares at YOUR shoes when they talk!)
And finally, digital content taxation is not a Heritage Canada issue.
It's a matter for Finance and International Trade.
