Quebec will tax services of Netflix, other foreign online firms: finance minister

With or without Ottawa's accord, the province plans to tax the popular Netflix streaming media service, says Finance Minister Carlos Leitão.

Published on: November 8, 2017 | Last Updated: November 8, 2017 9:11 PM EST

QUEBEC — With or without Ottawa’s accord, the province plans to tax the popular Netflix streaming media service and all foreign online trade as of 2018, says Finance Minister Carlos Leitão.

In a letter sent to federal Finance Minister Bill Morneau on Tuesday, Leitão signalled his intention to go where Ottawa won’t and will apply the Quebec sales tax to services provided by Netflix and other firms doing business in Quebec without actually having retail outlets here.

The letter specifically invites Morneau to review Ottawa’s position to not tax such companies, including Netflix, saying Quebec is willing to sit down and negotiate an arrangement.

But Leitão said one way or another, Quebec will act because the province considers the matter an issue of tax fairness.

“The status quo is no longer possible,” Leitão writes in the letter, which was released to the media. “If we cannot come to an agreement, Quebec will have no choice but to act alone.”

“We intend to go ahead and apply the provincial sales tax to Netflix and the others,” Leitão told reporters arriving for a morning caucus meeting. “Automatically, we’ll be collecting the GST.

“It is important to act on this. It is important to put in place a level playing field, and we are moving as fast as we can. It’s important to settle this as soon as possible.”

Quebec has been kicking around the idea for several weeks and is under pressure from the opposition parties and Canadian retail owners who also sell online and do collect the taxes.

Last week, Peter Simons, owner of the Simons department store, teamed up with the Québec solidaire party to call for Quebec to act. QS tabled its own proposed legislation, Bill 997, to regulate e-commerce and ensure tax fairness.

In an emotional pitch, Simons said firms like his, “with one foot in the old economy and one foot in the new economy,” are doing their fair share to pay for such social costs as roads, education and health care, so foreign ones should, too.

“The lobbies (against applying the tax rules) basically say, ‘We don’t want to participate and have any responsibility for any citizens or taxation in Canada,” Simons said.

“They say, ‘I love doing business with Canadians, but don’t want to take care of your father or educate your kids. I want to deliver my goods on your roads, but I don’t want to pay to fix the potholes.’

The federal government refuses to ask Netflix to charge its clients the GST and provincial sales tax, arguing it does not want to penalize the middle class. Quebec argues that means Netflix and other online companies are exempt to existing tax laws.

Ottawa also recently signed an agreement with Netflix in which the firm committed itself to spend $500 million on Canadian content over five years.

But Leitão says the two levels of government need to modernize the country’s archaic fiscal laws. In fact, he has been in touch with Netflix and other foreign online sales outlets and they are willing to conform, he said.

Quebec has already hammered out its own plan and wants to include the tax change in the March 2018 budget. It would then have to present new legislation adjusting Quebec’s fiscal regime and creating a simplified system for foreign companies to collect the tax and remit it to the government.

Quebec’s plan is to cover all goods and services offered online by foreign companies, including Netflix, Amazon and ebay. As for goods ordered online coming over the border, Leitão said Quebec will ask Canadian border officials to collect it.

Leitão said he has a good idea of the losses incurred in not taxing the massive foreign online sales business, but was unwilling to share the figures with reporters. There have been reports Quebec is losing as much as $225 million a year in revenue.

“All those who sell products and services must respect the new taxation laws,” Leitão said later during question period. “We are already in action.”

On Wednesday, the opposition parties welcomed Quebec’s decision to act on its own.

Parti Québécois finance critic Nicolas Marceau had his own suggestion, too. As a way to avoid increasing the tax burden of Quebecers, he said the federal and provincial governments should lower the provincial sales tax and GST so that the cost of the tax cut would be offset by increased revenues from online taxes.