It has taken a while, but almost all the major political parties now seem to finally agree that it’s time to tax the digital e-commerce giants: Facebook, Apple, Amazon, Netflix and Google. But each has made different commitments which may appear subtle but add up to big differences in how much these large companies would be taxed.
These corporations have had a rapid fall from grace in the past few years, from being the darlings of democracy to undercover bullies, just as rapidly as they’ve increased in size to become some of the largest businesses in the world. They’ve become embroiled in controversy over abuse of user information and privacy, spreading fake news for political purposes, censorship, abuse of monopoly power and more. Contributing to this fall from grace have been revelations that they’ve paid very little tax anywhere in the world, including in Canada.
These tax preferences are not only highly unfair to the Canadian companies and workers they compete against, but are also profoundly damaging to our media and cultural sectors. They have contributed to hundreds of media outlet closures and thousands of jobs lost. Especially galling is that these digital giants use news content produced by their Canadian competitors to siphon advertising dollars away from them as well.
Over 50% of all Canadian advertising dollars are now spent on digital advertising—totalling $8.8 billion annually and growing at double-digit rates—with three-quarters of this amount going to Facebook and Google. And those figures continue to rise. Two-thirds of the federal government’s advertising spending is now digital, with the vast majority going to Google and Facebook. Advertising dollars spent on Canadian newspapers and media outlets have plummeted, which has caused hundreds to go under, putting the news industry in crisis. The Liberal government responded by establishing a fund to subsidize domestic journalism, but didn’t address the underlying problems of the tax preferences that favours foreign e-commerce giants.
Foreign internet sites such as Facebook and Google also benefit from the federal government continuing to allow Canadian businesses to deduct the cost of advertising on foreign internet platforms. This advertising deduction was introduced to help support the Canadian media industry. However, while advertising expenses in foreign newspapers, periodicals and broadcasters have been disallowed, foreign internet platforms remain exempt from this regulation.
The impact is much broader than the media sector, and is increasingly being felt across all sectors, including transportation, accommodation and retail. Uber was established as digital platform meaning it can avoid tax on all different levels: sales taxes, payroll taxes, and income taxes, despite the fact that its business completely relies on publicly funded roads and other infrastructure.
Most other major nations have already taken steps to apply taxes to the digital giants and to their sales, including the United States, United Kingdom, France and other countries in the European Union and Australias. But despite advice and pressure from experts, stakeholders, unions, cultural groups and the province of Quebec, (including the CCPA in our Alternative Federal Budget and Canadians for Tax Fairness), the federal Liberal government refused to act, until this election.
Through their inaction, these e-commerce giants have been able to get away with paying little to no taxes on sales and profit in Canada. These tax preferences are not only highly unfair for the Canadian companies and workers that compete against them, but have also been profoundly damaging to our media and cultural sectors. Hundreds of media outlets have been forced to close, leading to thousands of job losses.
The NDP and the Bloc Quebecois have long called for the federal government to level the digital playing field and make foreign digital giants pay their fair share of tax, as have the Greens. Despite pushing back against a ‘Netflix Tax’ for years, the Liberals and Conservatives have also recently included measures along these lines in their election platforms.Each of the NDP, Bloc, Greens Liberals and Conservatives have made different promises. But how do they compare?
The NDP has said they would both “tax web giants digital services and advertising.” More specifically this means they would both apply a 3% tax on the digital service revenues of large e-commerce companies (with worldwide revenues of over $1 billion and Canadian revenues of over $40 million) from Canadian sources, similar to France’s digital services tax. They would also amend Article 19 of the Income Tax Act to restrict Canadian businesses from deducting the cost of advertising on foreign internet platforms, such as Google and Facebook. Both of these would be introduced immediately after the election.
The PBO estimates the 3% revenue tax on the webs giants would generate $203 million for the remainder of 2019/20, rising to $730 million in 2023/24 and up to $1.2 billion in 2028/29. Amending Article 19 would generate even more revenues for the federal government: almost $400 million in 2019/20, over $1.3 billion by 2023/24 and rising to almost $1.5 billion in 2028/29.
Like France’s digital services tax, the Bloc Quebecois platform calls for the Canadian government to apply a 3% tax on the revenues that internet giants generate in Canada and for “the federal government impose the GST on online advertising, regardless of the platform, in order to put an end to the unfair competition of the Web giants.” These proposals weren’t costed by the PBO and the Bloc hasn’t specified exactly what they would do.
Their 3% revenue tax proposal seems similar to what the NDP (and the Liberals) are proposing. This means that the revenues would be similar, but their call to impose the GST to online advertising regardless of the platform is unique. Others, including the Quebec and Saskatchewan governments, have called for applying the GST and other sales taxes to imports of all digital services (and not just advertising).
The Green Party notes in its platform that “The e-commerce sector – giants like Netflix, Facebook, Amazon, Google, and Uber command a significant share of the Canadian market but pay virtually no tax” and pledges to “apply a corporate tax on transnational e-commerce companies doing business in Canada by requiring the foreign vendor to register, collect and remit taxes where the product or service is consumed.”
This platform commitment seems to mix up the issues of collecting corporate income taxes and sales taxes from e-commerce giants, but their platform costing includes revenue both from “collecting sales tax from foreign internet companies” and from a “corporate tax on foreign based e-commerce companies”. The PBO estimates that these two measures would generate $250 million rising to $300 million annually from collecting the sales tax and $780 million rising to $890 million from applying corporate income taxes to foreign e-commerce companies for a total of over $1 billion annually.
The Liberal platform says they will “make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada” and “will also work to … ensure that international digital corporations whose products are consumed in Canada collect and remit the same level of sales taxation as Canadian digital corporations.”
While their platform doesn’t specify exactly what they would do, their revenue figures of $540 million in 2020/21 rising to $730 million in 2023/24 and up to $1.2 billion in 2028/29 annually are based on PBO estimates for applying a 3% tax on revenues similar to France’s digital services tax, and to what the NDP and Bloc are promising to do. The Liberal platform and costing doesn’t include any revenue line items related to applying GST and sales taxes to imports of digital services, which suggests that their plan might not be set in stone.
In their platform released last Friday, the Conservatives have also said that they would “make large technology companies pay their fair share.” This would involve a 3% tax on the revenues of businesses that “provide a social media platform, search engine, or an on-line marketplace to Canadians,” in other words, the main services provided by Facebook, Google, Amazon and E-Bay. Their definition appears to exclude streaming services such as Netflix and Spotify, while Canadian companies that sell these types of services to Canadians are still required to collect and remit the GST and corporate income taxes.
The Conservatives say this large technology tax would apply to companies with worldwide revenues of more than $1 billion and Canadian revenues of more than $50 million. However, they’ve also said that they would allow these companies to deduct corporate income tax paid in Canada from this technology tax. The PBO estimates that the Conservatives’ proposal would generate $410 million in 2020/21 rising to $560 million in 2023/24. This is the lowest amount of all the proposals.
The following table shows how much each proposal would generate in revenues each year and over five years, according to cost estimates prepared by the Parliamentary Budget Office. None eliminate all the major tax preferences that foreign large technology companies benefit from, but some clearly do more than others.
These figures also show just how significant these tax preferences have been for some of the largest companies in the world, and at the expense of Canadian producers, workers and federal (as well as provincial) revenues. These won’t eliminate all the tax preferences for these mega corporations, but at least all major parties have finally agreed to start to level the digital playing field and tax the digital giants. More needs to be done, but there are, at least, some steps forward after years of inaction.
|Party, Big Tech Policy and revenues ($millions)||2019/20||2020/21||2021/22||2022/23||2023/24||5 Year Total|
|NDP: 3% tax on revenue of foreign large tech companies related to targeted advertising services and digital intermediation services.||$203||$540||$600||$660||$730||$2,733|
|NDP: eliminate the deductibility of advertising on foreign internet platforms.||$396||$1,054||$1,159||$1,268||$1,385||$5,262|
|Bloc: 3% tax on revenue of foreign large tech companies related to their targeted advertising and digital intermediation services.||$540||$600||$660||$730||$2,530|
|Bloc: apply GST to all transactions of e-commerce companies in Canada.||$194||$781||$805||$831||$859||$3,470|
|Greens: apply GST to all transactions of e-commerce companies in Canada.||$194||$781||$805||$831||$859||$3,470|
|Greens: impose corporate income tax on e-commerce companies activities in Canada.||$45||$181||$192||$200||$206||$824|
|Liberal: 3% tax on revenue of foreign large tech companies related to targeted advertising and digital intermediation services.||--||$540||$600||$660||$730||$2,530|
|Conservative: 3% tax on revenues of large tech companies from social media platforms, search engines and on-line market-places”||--||$410||$450||$500||$560||$1,920|
|Note: all figures in millions and as reported by the Parliamentary Budget. Amounts do not include the additional impacts of raising the corporate income tax for the NDP and Greens.|
Toby Sanger is the Executive Director of Canadians for Tax Fairness
The CCPA has done extensive research and analysis on a wide range of federal policy issues, most notably through our annual Alternative Federal Budget. As we head towards the October 2019 federal election, we’ll be sharing our independent, non-partisan analysis and fact-checking of campaign promises and platforms from all the major parties.