Question Period Note: Netflix

Various stakeholders have called for the levelling of the playing field where foreign-based digital service providers that operate in Canada would need to contribute to the broadcasting system in an appropriate, equitable manner. The Government committed to establishing a 3 percent tax on the revenues of large foreign digital companies operating in Canada. Stakeholders have also called for the Government to apply its sales tax rules to foreign-based digital service providers that operate in Canada. At the establishment of their Canadian production house, Netflix committed to invest at least $500 million CAD over the next five years in original productions in Canada.

• Our Government is committed to creating a fair and equitable broadcasting system.
• As we review the Broadcasting Act, determining how all players can contribute to support the creation, production and distribution of Canadian content in both official languages is a priority for our Government.

Responsive (tax)
Any questions related to tax policy fall under the purview of the Minister of Finance. The role of the Minister of Canadian Heritage is to ensure that Canadian creators have the tools necessary to thrive in the digital world.

• Netflix is a subscription-based video distribution service that provides content that can be viewed on a wide variety of devices connected to the Internet. Netflix launched in Canada in September 2010 and is available to all Canadians with a broadband connection for a monthly subscription fee.
• The CRTC is responsible for regulating the broadcasting system and requires that programming services (e.g., CTV, TVA, RDI) contribute to Canadian programming through quotas and by requiring expenditures on Canadian programming. Further, broadcasting distribution companies (e.g., Vidéotron) are required to contribute five percent of their broadcasting revenues to Canadian programming, including production funds, such as the Canada Media Fund.
• In Canada, as a result of the CRTC’s Exemption Order for Digital Media Broadcasting Undertakings, companies such as Netflix are not required to contribute to Canadian programming either by quotas, expenditure requirements, or revenue contributions.
• Netflix and other foreign-based digital service providers that operate in Canada are not required to collect federal or provincial sales taxes (with the exception of the provinces of Québec and Saskatchewan) on monthly subscriptions for Canadian consumers. Currently, it falls to consumers to fill out a form and remit the tax. However, in reality, few do so. Netflix has said that they would comply with any changes in federal legislation, as they have provincially.
• Canadian private broadcasters complain that they do not compete on a level playing field with OTT platforms such as Netflix both because they charge sales tax and because of the regulatory requirements for financial contributions to Canadian programming noted above.
• In June 2018, the Government asked a panel of experts to review the Broadcasting and Telecommunications Acts. It is expected that the Panel’s Final Report, to be published in January 2020, will include recommendations to suggest how over-the-top (OTT) services could support Canadian content and contribute to the objectives of the Broadcasting Act.
• In its 30-page submission to the Panel, Netflix challenged its categorization as a “broadcaster”, submitting that it does not consider online services to be broadcasters, nor does it support the regulation of online services as broadcasters.
• On September 28, 2017, the Minister of Canadian Heritage announced that she had approved the establishment of a new Canadian business in the film and television production sector, Netflix Canada, following a review under the Investment Canada Act. Key undertakings offered by Netflix include: an investment of at least $500 million Canadian over the next five years in original productions in Canada, a CAD $25 million investment to support Canadian French-language content on the Netflix platform through a market development strategy for Canada, and promoting Canadian films and television shows on Netflix’s global platform.
• On February 19, 2019, Netflix announced it is renting a production hub in Toronto, Ontario involving leases for sound stages and spaces for office and support work at Cinespace and Pinewood Toronto Studios. Netflix said the commitment will provide jobs for up to 1,850 Canadians per year.
• The spring 2019 report from the Auditor General of Canada on the Taxation of E-Commerce found that the Government of Canada lost $169 million in potential GST revenues in 2017, on foreign digital products and services.
• In September 2019, Netflix released an update on their production investment activities in Canada stating that it had “exceeded the minimum commitment of $500 million.”
• On December 9, the Finance Minister reaffirmed that the will implement a 3 percent tax on digital giants. This tax is expected to take effect as of April 1, 2020 and would affect large digital companies that record more than $1 billion in international revenues.
• Both sales taxes and corporate taxes are a matter of taxation policy to be addressed by the Minister of Finance.

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