Thank you very much for this opportunity to meet with you.
My main message is that Canadian e-commerce companies face a huge competitive disadvantage because their big foreign-based competitors are able to compete in the Canadian market without facing any taxes in terms of GST or corporate profit taxes. E-commerce companies, particularly big ones like Netflix, Google, Amazon, Facebook, Uber, and Airbnb, are capturing a huge and growing share of the Canadian market, but pay little or no taxes. They have been exempted from paying taxes by the Canada Revenue Agency because they have no physical presence in Canada and therefore are deemed not to be carrying on business in Canada. This policy is outdated.
You can't talk about how the government can support Canadian business to be able to compete and grow through electronic commerce unless you address the need to level the playing field. The foreign-based e-commerce sector now has revenues of more than $20 billion a year from sales in Canada. Just Google and Facebook together capture 64% of all Internet advertising dollars spent in Canada, over $2.4 billion. Internet advertising is growing rapidly and now captures 34% of all ad spending, compared to 30% for television, 13% for daily newspapers, and only 14% for radio. Foreign e-commerce companies are squeezing out many Canadian media companies, taxi services, hotels, and retailers, including many small businesses. Good jobs are being lost. Canadian companies are losing, because of unfair competition, to foreign companies that pay little or no taxes.
The European Union, New Zealand, Australia, Norway, South Korea, Japan, Switzerland, and South Africa have all modernized their tax laws to respond to changing e-commerce reality. The OECD, in its base erosion and profit shifting action plan on “Addressing the Tax Challenges of the Digital Economy”, has recommended ways that governments can collect value-added taxes where the product is purchased to help level the playing field between foreign and domestic suppliers. The OECD has just recently provided further technical advice in “Mechanisms for the Effective Collection of VAT/GST”.
While the 2017 federal budget did include a requirement that ride-share businesses pay the GST, other foreign digital economy players have not been forced to play on a level playing field. Failure to update our tax policy creates unfair competition; causes significant job losses in the journalism, media, and cultural sectors; threatens the vitality of Canadian culture; and squanders the opportunity to raise several hundred million dollars in tax revenue for both federal and provincial governments.
We recommend that the Canadian government level the playing field by making all e-commerce companies with Canadian income above a certain threshold—perhaps a small business threshold of $500,000—pay corporate income taxes on profits from products or services sold or rented in Canada. It's hard to say exactly how much this would raise, because many of these big companies don't report their profits by country, but it could raise maybe $600 million a year.
At the very least, we need to start charging GST and HST for electronic commerce services that sell to Canadians above a certain threshold, and require them to collect and remit GST and HST on their sales in Canada to federal and provincial governments. We estimate that this could raise over $2 billion a year. Mind you, two-thirds of that would go to provincial governments, but they may need the money even more than the federal government does. That would be a good thing for all Canadian citizens.
Thank you very much.