My perspective - Foreign advantage

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Published on Thursday, March 9, 2017

By Kate Jackman-Atkinson

The Neepawa Banner

It’s not a surprise that governments are slow to adapt to changing times. Bound by bureaucracies and protocols, they tend to be playing catch up, deciding how best to react to the choices already made by citizens. While overall, I don’t mind that our governments aren’t prone to rash decision making, the glacial pace can create deep inequities— something that has been brought into sharp focus.

I like social media, it’s a great way to catch up with friends around the world and to stay in touch with your favourite businesses. But there are a lot of things that social media sites aren’t good at.  They aren’t good at differentiating between reliable and unreliable sources and they aren’t at all good at generating unique content. Someone from Facebook won’t tell you what’s happening with your municipal taxes or be at your kid’s science fair. Facebook isn’t letting you know about inspiring people in your community or who’s been arrested. You might find these things on Facebook, but they were created by someone else— one of the numerous media outlets out there, on the streets and in their offices, working to inform the broader community.

These media operations also pay taxes; they pay corporate taxes, they pay sales taxes, they pay property tax and they pay their staff, who then pay income tax. In a column recently published in the Globe and Mail, Bob Cox, Winnipeg Free Press publisher and chair of News Media Canada, said that his relatively small chain pays $17.2 million in municipal, provincial and federal taxes each year. Foreign based media, such as Facebook or Google, don’t have these same expenses.  Sure, they pay some taxes in Palo Alto or Menlo Park, where they are based, but it’s unclear how much tax the companies pay on their Canadian operations.  By all estimates, it’s a fraction of what Canadian media companies are paying.

In France, the government has become so concerned about Google that in May 2016, 100 police officers, including magistrates and forensic IT specialists, raided the company’s headquarters in Paris as part of an ongoing tax fraud investigation. Both Google and Facebook aggressively employ international corporate entities and tax havens to reduce their taxes. According to the Daily Mail, in 2014, Facebook paid just $4,327 in corporate taxes in the UK.  According to Reuters, in 2014, Google moved 10.7 billion euros through the Netherlands to Bermuda, which has no income tax, in order to cut its tax bills.

Canadian operations could see similar numbers. According to the Financial Post, Google was the 95th largest company in Canada, with $4.4 billion in revenue. Facebook doesn't split it’s Canadian and American income, which combined was $5.84 billion for 2015. That revenue comes from selling ads to approximately half of all Canadians, the number of Canadian Facebook users. Just how much tax is actually being paid on that revenue isn’t clear, but likely, not a lot.

Beyond tax avoidance, a quirk in Canadian tax law also provides an uneven playing field for foreign media companies. Article 19 of the Income Tax Act prevents Canadian companies from deducting expenses related to advertising in foreign publications or television stations. However, it was developed in a pre-internet world and doesn’t apply to foreign websites. This means that all internet advertising is tax-deductible. Additionally, advertisers placing ads on Facebook aren’t changed GST, another hit to the government’s coffers.

The recently released Shattered Mirror report advocated taxing international media companies and using the money to create a pool to better help Canadian media move into the digital world.  I don’t think that’s necessary, but I think the inequity must be addressed. I want to see international companies operating in Canada face at least the same tax burden as Canadian companies.  Whether it comes by way of changes to allowable deductions for advertisers or taxation on the companies’ Canadian revenue, its time for fairness. Foreign companies shouldn’t have such an unfair advantage.