Google, Facebook argue against 'punitive' tax proposal for digital media

Proposals for tax changes aimed at helping Canadian publishers fight for revenues with online news aggregators would result in a punitive "tax on advertisers," executives from Google Canada and Facebook Canada told a Commons committee studying the country's media industry.

That's because tax laws currently on the books designed to prop up the industry are archaic and simply don't apply to the Internet age, Jason Kee, Google Canada's head of policy and government relations, told the heritage committee Tuesday.

Kee said he had concerns over how such changes would be implemented.

"Long story short, it's essentially a tax on Canadian advertisers," he said.

A report commissioned by the Department of Heritage and unveiled late last month called on Ottawa to consider changing tax laws to favour Canadian news publishers in the digital advertising market and use the new revenue stream to establish an independent, publicly subsidized journalism fund.

The independent think-tank Public Policy Forum recommended that advertising with foreign-owned websites no longer be deductible under the federal Income Tax Act.

The report, authored by former journalist Edward Greenspon, said that, by extending a 10 per cent withholding tax to commercials and advertising carried by foreign digital media, the government could create a new revenue stream of up to $400 million annually.

But Kee said that assumes a direct relationship between an advertiser and a publisher that doesn't actually exist in the digital world, but which does for traditional media under a policy dating from the 1960s.

"So as a result, a change in tax treatment could actually be punitive and there may not actually be an alternative (way to advertise)," he said.

Facebook Canada’s Kevin Chan added that the committee should be asking Canadian advertisers what they think of the tax change proposal, suggesting they might shed more light on how the potential changes would affect them.

The appearance by representatives of the social media aggregators was the first since both firms pledged to roll out tools in Canada designed to crack down on so-called "fake news."

Both Facebook and Google said they planned to unveil those tools in Canada soon — as they have already in the United States and elsewhere — to help users discern between credible news and what they term "misrepresentative content."

Chan told the committee the tools will be introduced slowly and will at first be "narrow in scope" over concerns that legitimate news might be deemed "fake news" after being flagged by users who simply might not agree with a story, even if it's accurate.

Heritage Minister Melanie Joly held consultations last fall where media industry representatives argued in favour of an Internet tax or at least a sales tax on streamed digital content to help pay for Canadian content.

While Joly has insisted there would be "no Netflix" tax under the Liberal government, she has deferred questions about a potential sales tax to the Finance Department.

But a spokesperson for Finance Minister Bill Morneau said last month that expanding the Goods and Services Tax to Netflix was not in the works.

Foreign-based streaming services are technically subject to sales tax on their Canadian sales, but no system has ever been established to collect the tax.

Revenue for Canadian news content providers, including traditional media, has dwindled as advertising dollars shift to online news aggregator services.

Pollster Allan Gregg at Earnscliffe Strategy Group, has said Canadians have enjoyed faster access to more content than ever before, thanks to the Internet, and don't see a crisis in the news business.

A majority of those he has polled are dead-set against taxpayers propping up the industry, Gregg added.

Joly told the Canadian Media Producers Association earlier this month that Canadians she has heard from want all media providers to be treated equally, but they don’t want to see their Internet bills go up.

"We have to bear in mind that Canadians are anxious about their cost of living," Joly said.

Joly has promised to unveil a cultural strategy this year aimed in part at bolstering job growth in Canada's cultural sector, with an emphasis on cultural exports. The minister is also expected to announce soon the results of her wide-ranging review of Canada's media and cultural industries.

Joly's office has called the shifts in news revenue streams "significant," and said the government hopes its Canadian content consultations can help it assess how to best support the production of local, credible and reliable news and information.

The heritage committee is expected to report to Parliament by spring.