Netflix: Nearly 400 Million Not Collected in Sales Tax

Business Finance

By not requiring Netflix to tax its services, Justin Trudeau and several provinces have deprived governments of nearly $ 400 million in sales tax revenues since 2015, according to QMI Agency calculations.

In Canada, the annual turnover of the Californian multinational more than doubled between 2015 and 2019 inclusive, from our current estimate of $ 487 million to $ 1.18 billion. With the accumulation of each of these years, Netflix’s revenues would have totaled $ 3.9 million during this period.

To arrive at these numbers, we first established the number of subscriptions in Canada based on estimates made over the years by reputable firms, including Digital TV Research and Solutions Research Group, since the company does not disclose publicly its subscriptions and revenues.

The company’s revenues were then calculated based on the cost of monthly subscriptions.

Since arriving in Canada in 2010, the Californian multinational does not collect taxes on its services, unlike its main competitors: Amazon Prime Video, CraveTV, illico and Tou.tv.

If the GST were applied to Netflix’s revenues, the federal government would have collected more than $ 195 million since 2015, according to our calculations.

As for them, the provinces would have collected revenues of about $ 200 million. In total, about $ 395 million would have escaped the federal and provincial governments.

Since 2019, only Quebec and Saskatchewan have been charging taxes on Netflix services, which should be about $ 20 million and $ 2.2 million respectively this year, according to our estimates.

Opacity

This situation has two notable impacts, according to Rosalie Wyonch, an analyst at the CD Howe Institute. “First of all, governments do not receive the revenues they are entitled to, which represent millions of dollars and are increasing year by year due to the growth of the digital economy,” she says.

In addition, there is a direct impact on competition.

“By not taxing the services of a foreign company in this way, that is equivalent to financing its activities,” she explains. The government is putting Canadian businesses at a disadvantage, because they have to collect taxes. “

Rosalie Wyonch believes that the opacity of companies like Netflix is ​​problematic. When they do not disclose their subscriptions or revenues in Canada, “it’s impossible to get a clear picture of what they’re doing and, what’s more, the actual consumption habits of Canadians in the digital age,” she says.

Tax possible

In the election campaign, the Liberals of Justin Trudeau nevertheless proposed to fill this shortfall. They promised last week to collect, if elected, a 3% tax on the gross revenues of the digital giants, including Netflix. It should be noted that this is not a question of imposing the federal sales tax.

On Monday, outgoing finance minister Bill Morneau said the new tax could be implemented within a year. It is, however, linked to a joint decision of the OECD (which has 36 countries) on this subject.

Netflix in Canada

  • Projected sales in Canada in 2019: $ 1.18 billion
  • Sales growth over the last five years: 53%
  • In five years, about $ 395 million in taxes would have escaped Canada and the provinces.
  • Netflix is ​​the most popular streaming platform in the country, capturing 58% of Canadian subscriptions in the industry, according to Digital TV Research.

Number of subscriptions per platform 2019

  • Netflix: 7.3 million
  • Amazon Prime Video: 2.5 million
  • Crave TV: 1.7 million
  • illico: 525,000
  • Fibe Alt TV: 125,000
  • CBS All Access: 62,000
  • Other: 289,000
  • Source: Digital TV Research
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