Canadian Heritage Committee on Dec. 1st, 2016

[Danielle Laflèche]

Thank you for your question.

Mr. Chair, it is true that the GST is payable by consumers. If a consumer is in Canada and the supplier is in Canada, then I think it's relatively clear that any supplier who's making supplies of advertising or media to a Canadian consumer is required to charge the tax, so the consumer is required to pay the tax, generally speaking. The question is different when we have a non-resident supplier, whether it's advertising, media, and so on and so forth.

Under the legislation and the way it is worded now, a non-resident is outside Canada and normally would not, generally speaking, charge and collect GST. However, there are instances where, I'll say, a supplier will have to, and the situation would be if the supplier is making a sale of something that is intangible or tangible to a Canadian consumer. If it's a tangible good, such as newspapers, magazines, and so on and so forth, the law is specific. That supplier is required to charge GST and get a registration number, so at least the non-resident supplier is treated the same way in regard to goods as the supplier who is located in Canada. The consumer has to pay. The non-resident has to charge and remit the GST.

Where it gets a little difficult is in talking about something that is intangible, such as digital supplies. Digital supplies don't go through the border, so there's nothing to touch. The way the legislation is worded, we have to determine whether this non-resident, this person who is making a supply in Canada, is making the supply through a location, a place of business in Canada. I'll give an example. We have supplier X, who is in the States and is making a supply of advertising to someone in Canada, but really, everything is being done through a place of business in Canada. That supplier has to charge and remit the GST, because he's considered to be carrying on business in Canada, so he's treated like everybody else. A—

[The Vice-Chair, Conservative, Larry Maguire]

I'll have to get you to wrap up your answer, but go ahead.

[Danielle Laflèche]

Okay. My apologies.

A person who is a non-resident who is making supplies through a place of business in Canada or is carrying on a business in Canada is required to register and to charge GST to the consumer. If that person is not considered to be carrying on business in Canada, the consumer is required to self-assess the tax, right?

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

Okay. So I would be—

[The Vice-Chair, Conservative, Larry Maguire]

I'm going to have to move on.

[Danielle Laflèche]

Thank you.

[The Vice-Chair, Conservative, Larry Maguire]

Mr. Nantel, please.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Thank you very much, Mr. Chair.

Ms. Laflèche and Mr. Keenan, thank you for being here because it's very important that you enlighten us.

Ms. Laflèche, as I understand it, entrepreneurs who sell things from other countries and haven't made the effort to open a branch in Canada have the best of everything because they aren't required to charge taxes.

[Danielle Laflèche]

Actually, if non-residents don't have a place of business in Canada, they may still have to charge taxes.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Of course, but it's less automatic.

[Danielle Laflèche]

There are circumstances in which non-residents must. If we consider that they have a place of business in Canada, they are required to charge taxes.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

I rarely do this, but since we're talking about regional media and the survival of written media, I will read you an article. It's an editorial by Paul Journet that appeared on Monday and is titled “E-commerce: the scandal that no one cares about”:

There is no reason to tolerate foreign digital companies like Netflix paying no sales tax. In a normal world, this should be obvious. This article would even seem clumsy, like smashing into an open door with a bulldozer. But we don't live in a normal world. We are wading into a new astonishing ecosystem, the digital age, where injustice is disguised as innovation. Club Illico (Vidéotron), Tou.tv (Radio-Canada) and CraveTV (Bell) have to charge sales tax. Netflix does not, a windfall of about $85 million. The reason? The legislation is outdated. If a foreign digital company does not set up an office in Canada, it is not required to charge sales tax, even if its goods and services are consumed here and are taxable.* Foreign giants can therefore place their starting blocks ahead of the line. And what does the referee say? Almost nothing. After all, consumers love the show! If the debate has gone astray, it is primarily because of the Harper government. His remarks were no longer addressed to the citizen, nor even to the taxpayer. They were intended for the consumer. The message? We will not ruin your shows by taxing them. So the Conservatives created a taboo, the “Netflix tax”. During the last election, the Liberals and the New Democrats in turn promised not to impose it. It's a sneaky expression because it can mean two different things. The first is that the giant should contribute to the Media Fund to finance Canadian productions. The second is simply to require Netflix to charge sales tax as well. Participation in the Media Fund is both a burden and a benefit (if you fund it, you can also be funded in return to pay for local productions). It is a legitimate debate, but the one on the sales tax is not because there is nothing to debate. There is no justification for submitting to unfair competition. If you accept it, it is also because of some fuzzy techno-speak. People claim that the Internet is something that wants to be free. It's impossible to regulate it. Yet, tax fairness is not a 20th century idea, doomed to go the way of the fax machine. Resignation, however, is not the only choice. Australia is proving that with its new law that will require foreign digital companies to charge sales tax. The European Union and Japan, among others, have already moved in this direction. In Canada, people are finally speaking out and demanding the same thing. There was the Godbout report on Quebec taxation, the heartfelt cry of entrepreneur Peter Simons, and finally, this fall, the recommendation from the Chair of the Canadian Radio-television and Telecommunications Commission (CRTC). The ball is in Ottawa and Quebec's court. It is the very start of the fight for tax fairness. The first step is the easiest. If we do not dare to take it, how can we claim to be fighting tax avoidance by tackling more complex problems, such as the transfer of corporate profits to other countries or to dozens of bilateral treaties? Charging sales tax is not a technical issue. It's a moral test.

The author added the following at the bottom of the page:

* The $85 million estimate was made by Marwah Rizqy, a professor at the School of Management at the University of Sherbrooke. If the foreign digital company does not have a significant presence on Canadian soil, such as an office, a bank account or employees, it is not required to register with the GST and QST or charge these taxes. It is therefore up to the consumer to remit sales taxes to the tax authorities.

This is what the author says here.

Self-assessment is extremely rare. Revenu Québec received only six self-assessment forms in 2011 and five in 2012.

I was keen to read this article.

According to your presentation, Mr. Keenan, we have been in international negotiations since 2015. Where are we now and why is it taking so long?

[Sean Keenan]

As I mentioned in my remarks, and as you noted, there is work ongoing. There is a lot of experience in other countries related to the proper collection of the VAT or GST from foreign vendors who don't otherwise have an operation in Canada. As Madam Laflèche explained, the way the law is written right now, there's generally a self-assessment requirement on the importation of digital services, and that generally relates to the era when the law was written.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Allow me to make a comment, Mr. Keenan. Everyone here has already done business with some service provider or another who has asked them if they wanted to pay the taxes or if they wanted to settle the bill under the table. Everyone has had to answer the question. Yet everyone says it is illegal not to pay taxes and that we need to pay taxes to pay for our roads and health care systems.

What's wrong? Why is it taking so long to agree at the international level that suppliers have to do their part, if only by collecting transactional taxes? We're only talking about that for the moment. Why is it taking so long? The report will come, as you mention. I am not blaming you; this is happening abroad. That said, why are we tying ourselves in knots over something so simple?

[Sean Keenan]

Obviously, changes in the law need to be made by Parliament, and they need to be introduced by the government. That's a decision that ultimately needs to be made. I would say that the work that's ongoing and the work we're doing with the international community is to ensure that we understand the best way to ensure proper collection of the tax.

What we've heard in our consultation and in the work with the OECD is that companies want to comply with their tax obligations, but at the same time, they're doing business in a lot of countries. They want to make sure, then, that the regime that's in place is as easy to comply with as possible. The experience of other countries that we're gathering to see what works and what doesn't work is certainly helping us in providing the best advice we can to the government of the day.

[The Vice-Chair, Conservative, Larry Maguire]

Thank you, Mr. Keenan.

We're going to have to move on.

Mr. Breton.

[Pierre Breton, Liberal, Shefford, QC]

Thank you, Mr. Chair.

I don't have many questions.

Imposing a tax works in some countries. Australia was given as an example in the article that Mr. Nantel read.

My question is about the report. Could you talk more about it? Where exactly are we with the recommendations? What role do you play?

[Sean Keenan]

I'd like to address a couple of points.

For example, the Government of Australia and the Government of New Zealand announced early last year that they would be introducing mechanisms. The regime in New Zealand just came into force. There's a long delay, essentially, or some time, between the announcement of the proposal and then working out all the details, to ensure that the companies are properly registered and that the considerations in terms of the registration regime are in place to ensure they actually work.

In the work that's ongoing with the OECD, we're members of the Working Party No. 9 committee. We are participating in the deliberations on and preparation of the report on what works in certain countries and what doesn't work. As I mentioned before in response to a previous question, when we look at tax policy proposals such as this one, how do we develop a regime that would allow us to implement this policy if it needed to be implemented and if it were to be implemented? We're looking at the experience of other countries, seeing what works and what doesn't work, and consulting with our colleagues at the CRA to make sure that any rules put in place are going to be enforceable, so that the mechanisms to collect the tax would be something that we could get.

There are certainly questions about how to treat supplies from businesses to businesses. Those are covered by certain rules. Are we going to have a regime that applies only to supplies from businesses to consumers? What does that mean for things such as input tax credits? These are technical issues that need to be considered and resolved. They're the kinds of things in relation to the design that are part of our work in providing that analysis and advice to the government of the day.

[Pierre Breton, Liberal, Shefford, QC]

We're here today to ask you questions, but I would like to know who originally requested the report from October 5, 2015.

[Sean Keenan]

As to the work on the base erosion and profit shifting that the OECD was doing, if I remember the origins correctly, there was a proposal that the member states of the OECD took up just to say, is there work that we can do? Then the G20 countries worked in coordination with the OECD to ensure this work was done.

As I mentioned, there were a number of reports. There were 15 reports on various aspects of this, of which the digital economy was only one.

[Pierre Breton, Liberal, Shefford, QC]

Would one of my colleagues like to take the rest of my time?

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Yes.

Is it okay, Mr. Chair?

[The Vice-Chair, Conservative, Larry Maguire]

Go ahead, Mr. Samson.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Thank you.

If memory serves, people from Google told this committee that they paid taxes in Canada. Could you confirm that?

[Danielle Laflèche]

For confidentiality reasons, I can't confirm whether or not Google pays taxes. Generally speaking, I can say that if a non-resident provides goods or services in Canada, under the regulations, the non-resident must collect the sales tax and remit it to the government.