Finance Committee on May 27th, 2021

[The Chair, Liberal, Wayne Easter]

We're now on clause 106.

[Pierre Mercille]

Clause 106 deals with what is called the holding corporation rule in the GST/HST legislation.

In certain circumstances, this holding corporation rule allows a holding corporation to claim ITCs, or input tax credits, with respect to some expenses in relation to a subsidiary or a related company.

There are two amendments. The first one clarifies which expenses can give rise to those ITCs, and the second amendment expands the rule. Right now, the holding corporation rule only applies if the holding company is a corporation. We're expanding the rules to allow the benefit of these rules for a holding entity that is a trust or a partnership, because one particularity of the GST/HST legislation is that “trust” and “partnership” are treated as separate legal entities; because we opened those rules, there are a few little technical changes that are meant to improve the text.

[The Chair, Liberal, Wayne Easter]

I don't see any questions, so shall clause 106 carry on division?

(Clause 106 agreed to on division)

(On clause 107)

[The Chair, Liberal, Wayne Easter]

We're now on clause 107.

[Pierre Mercille]

Clause 107 is the main rule that deals with e-commerce in this bill.

As you may know, there are three different measures for e-commerce. One is to ensure that non-resident vendors that supply digital products and services to consumers in Canada are required to register under a simplified system and to collect and remit the GST/HST on their taxable supply to consumers in Canada. That's the first aspect of the measures in this section.

The second aspect deals with goods that are currently in Canada and that are going to be sold to a person in Canada. It basically requires distribution platform operators and non-resident vendors to register under the normal GST/HST rules and collect and remit the GST/HST with respect to certain supplies of goods as shipped from a fulfillment warehouse in Canada to a consumer in Canada.

You may have gone on websites before, such as online stores and things like that, and found that basically the product is sold by company A, but it's fulfilled by company B. These are the kinds of transactions that these amendments will affect.

The last aspect of these e-commerce provisions is to basically apply the GST/HST on all supplies of short-term accommodation in Canada that are facilitated through a digital platform.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

Is this going to apply to Netflix now? Does this accommodate a Netflix-type tax, or is this just for something like Amazon, when you buy something in the United States and have it imported here? Give me an example of how this would apply.

[Pierre Mercille]

I'm not going to comment on how the rule would apply to specific companies, but I can tell you that the first aspect of the amendment that I described is intended to target foreign companies that provide streaming services in Canada.

[Ed Fast, Conservative, Abbotsford, BC]

Let me get this right. You mentioned there's a simplified registration process for e-commerce vendors. These e-commerce vendors are outside of Canada, correct?

[Pierre Mercille]

Yes.

[Ed Fast, Conservative, Abbotsford, BC]

We're asking foreigners to register for HST/GST purposes if they want to do business in Canada, correct?

[Pierre Mercille]

Yes.

[Ed Fast, Conservative, Abbotsford, BC]

We're asking them to remit tax to the Canadian government.

[Pierre Mercille]

Yes.

[Ed Fast, Conservative, Abbotsford, BC]

Has any analysis been done on whether this is going to reduce the willingness of foreign e-commerce vendors to do business with Canadians?

[Pierre Mercille]

My understanding is that the model that is generally proposed by the OECD has been implemented in other jurisdictions. From what I understand, there's a willingness by those companies to comply with those rules, basically so that they keep their good corporate name.

[Ed Fast, Conservative, Abbotsford, BC]

I'm not opposed to this measure. It's just that I'm wondering to what degree there will be compliance with it and whether we'll lose some vendors and others will find ways of circumventing these rules.

[Pierre Mercille]

I'm the legislative guy, but from what I understand from the policy people, in other jurisdictions where similar models have been put in place, the major players have complied with those rules.

[The Chair, Liberal, Wayne Easter]

We'll go to Mrs. Jansen and Mr. Ste-Marie. I promised the translators we would suspend about now. If we could take the two questions, we'll then have to suspend.

Go ahead, Mrs. Jansen.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

You mentioned that the big players have been chatted with. Has somebody in the Canadian government actually talked with the big players, and they've said that they're willing to do this? Is that what you were saying, or are you saying that they've done it elsewhere, so we just expect they'll do it here?

[Pierre Mercille]

I said the first part, but to add to my answer, my understanding is that people have talked to the major players, and their intention is to comply.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Who would “people” be?

[Pierre Mercille]

I don't want to name specific companies.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

I mean, who was talking to the companies? Was it federal employees or officials?

[Pierre Mercille]

I know officials talked to.... I would not be surprised if the minister's office talked to those companies too. I have no details about that. I just know that officials from the sales tax division and the tax policy branch have talked to some of those major players.