Canada part of int’l talks on taxing foreign digital services

OTTAWA — Canada is involved in international discussions about how to address the issue of foreign digital vendors not being subject to domestic sales tax, a parliamentary committee learned Thursday, as it prodded at a long-standing question of whether American companies such as Netflix Inc. are benefiting to the disadvantage of Canadian media companies. “The challenges related to the proper collection of sales tax on digital supplies by foreign-based vendors are not unique to Canada. It’s a difficult issue for all jurisdictions with a sales tax,” Sean Keenan, director of the sales tax division for the finance department’s tax policy branch, told the House of Commons standing committee on Canadian Heritage, appearing as part of the group’s study on the media and local communities. Canadian officials participated in work by the G20 and Organization for Economic Co-operation and Development (OECD) on gaps in tax rules, Keenan said. A report issued last year “examined issues related to the effective collection of sales tax on cross-border digital supplies and services and recommended that where countries decide to institute a regime for taxing foreign suppliers of digital content, the regime should follow the principles of OECD’s international value-added tax/GST guidelines for these supplies,” Keenan said. The guidelines say the best method is for countries to require foreign businesses to register to collect tax in the country of the consumer, he added. “These Guidelines recognize explicitly that it is necessary to reinforce taxing authorities’ enforcement capacity through enhanced international co-operation in tax administration in the field of indirect taxes,” the OECD report said. Canadian officials are also involved in OECD work to develop tax-collection mechanisms, Keenan said, adding that best practices are being studied from countries that have already put those systems in place. In response to a question about why other countries seem to be moving forward, Keenan noted that those jurisdictions have put in a great deal of work. He cited New Zealand, which brought in a system on Oct. 1 requiring foreign suppliers to register and pay GST that was announced the previous year. “There was a long delay, or some time, to ensure that between the announcement of the proposal and then working out all the details to ensure the companies are properly registered and that the considerations about the registration regime are in place, to ensure they actually work,” Keenan said. A May report from New Zealand’s Inland Revenue agency said that the country’s new tax rules “apply to cross-border ‘remote’ services and intangibles supplied by non-resident suppliers to New Zealand-resident consumers” and apply to offerings such as “e-books, music, videos and software downloads, as well as non-digital services, such as general insurance, consulting, accounting and legal services.” The New Zealand rules apply if the value of the remote supplies involved exceed $60,000 (New Zealand dollars) in a 12-month period. “The new rules are intended to maintain the broad base of New Zealand’s GST system and from a GST perspective create a level playing field between domestic and offshore suppliers of services and intangibles,” the report said. “The effect will be to reduce the extent to which differences in GST treatment distort consumers’ purchasing decisions.” A similar system will come into force in Australia next year. Several witnesses who have appeared before the committee have called for foreign companies to be subject to sales tax, to put them on equal footing with their Canadian counterparts. Last month, Alphabet Inc.’s Google Canada said imposing sales tax on foreign companies would hurt smaller enterprises trying to enter the Canadian market. — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Canada part of int’l talks on taxing foreign digital services

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