Quebec Ink

Quebec Ink: The dreaded Netflix tax is working out just fine

A 2015 Conservative Party campaign video warned the other parties would introduce a “Netflix tax.” Stephen Harper | Twitter

MONTREAL — The legislation behind the first digital sales tax in Canada reads like an afterthought. Shovelled into a bill that also allowed for personalized licence plates and craft-beer sales, the amendment enabled the provincial government to collect sales tax on “intangible movable property and services” sold to consumers in Quebec.

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Talking Point

Naysayers said it wouldn’t work, but Quebec’s digital sales tax has been a success in the province, bringing nearly $170 million into provincial coffers since coming into effect in January 2019. The bounty it has collected, and the ease in which it was put in place, begs the question: why was Ottawa against the Netflix tax in the first place?

The amendment has nevertheless been a boon to Quebec’s coffers. Some 711 entities from outside the province have registered with the Quebec government since the tax came into effect in January 2019, duly collecting and remitting just under $170 million in sales-tax revenue to the province. Among those foreign entities playing taxman on behalf of the Quebec government are Facebook, Amazon, Apple, Netflix and Google, the so-called FAANG group of technology companies whose digital wares rule the internet’s roost.

The tax is a lowkey success for Quebec. Saskatchewan has since followed Quebec’s lead in charging the digital-sales tax, though the province was unable to tell me how much it has benefited its bottom line. British Columbia, too, has announced a digital tax, though COVID-19 has delayed its implementation.

In Quebec, getting Big Tech to collect sales tax was a lead-pipe cinch. “It was surprisingly easy to implement,” Carlos Leitão, the former Quebec finance minister who spearheaded the bill, told me. So easy was it, in fact, that Leitão offered then-finance minister Bill Morneau to have the Quebec government collect the GST and remit it to the federal government. “At first he was interested, but when we talked a few days later, it was, ‘Whoops, no, don’t do that.,” Leitão said. 

Indeed, Quebec’s digital sales tax is also a reminder of how, in refusing to implement its own digital tax at the same time, the federal government has left hundreds of millions of dollars, if not more, on the table. And for this, we can thank a cynical political calculation made during the 2015 federal election. 

A few days into the campaign, Stephen Harper posted a minute-long video of himself standing in front of a giant Netflix logo emblazoned on a flatscreen TV. “Something you might not know about me is that I love movies and TV shows,” a smiling then-prime minister said, who then professed his love for “Breaking Bad” before getting into the meat of the issue. 

“Some politicians want to tax digital streaming services like Netflix and YouTube. Some have even called on us to introduce a Netflix tax. Now, Justin Trudeau and Thomas Mulcair have left the door wide open to doing just that,” Harper said. “Only our party can be trusted not to bring forward a new Netflix tax.”

As a piece of political advertising, the spot was less “Morning Again in America” and more ShamWow commercial. Yet, in introducing “Netflix tax” into the political lexicon, Harper was able to paint his opponents as spendthrifts who sought to tax the very data streaming into the nation’s living rooms. “Harper came up with the term ‘Netflix tax,’ and he was trying to bait us into a narrative that the Liberals were tax, tax, tax,” a Liberal campaign strategist told me. “We didn’t want to get baited.” (The Conservatives, it should be noted, have since doubled down on Harper’s No Netflix Tax mantra, saying they would cancel all digital taxes for all platforms, Canadian or otherwise.)

The effects of Harper’s gambit are still visible years later. When, in 2017, the government hyped its five-year, $500-million deal to fund Canadian content on the platform, it came with the promise that the service would remain tax-free for Canadians. “We’re not going to be raising taxes on the middle class through an internet broadband tax,” said Trudeau.

If the prime minister thought he was delivering some good news to his adopted province, it fell on deaf ears. Québecor CEO Pierre Karl Péladeau laid the conceit to waste by pointing out the obvious: by dint of being based in Quebec, Québecor’s own streaming entities were taxed, while Netflix and other foreign services were not. It was left to Mélanie Joly, then-heritage minister, to sell the mess to the Quebec public. It didn’t go well

There is perhaps something cruel about taxing the likes of Netflix as the pandemic continues to rage across the country, when streaming services have become akin to essential services for the forcibly confined. Yet in Quebec alone, the money collected from those foreign entities has wrung more than enough to pay for the provincial government’s $150-million aid package for small- and medium-sized businesses.

Of course, taking on Airbnb, Uber or Netflix—or any foreign multinational, for that matter—isn’t just about fiscal policy in Quebec. It’s a way to show one’s nationalistic bona fides in the face of the English-speaking capitalist hordes beyond its borders. 

This is the province, remember, that helped block Ontario-based Rogers from snapping up Quebec cable company Vidéotron in 2000, and said it would intervene if necessary when Rogers attempted a takeover of Montreal-based Cogeco 20 years later. 

No wonder the loudest protests of the federal government’s Netflix deal came from Quebec cultural gatekeepers, who decried the potentially nefarious effects it might have on “our national identity and our cultural sovereignty.” And no wonder that the law taxing Big Tech also regulated “remunerated passenger transportation” (Bonjour, Uber!) and “tourist accommodation establishments,” (Hi, Airbnb!) as well.

Quebec’s digital-tax naysayers were legion. Enforcement would be difficult, and compliance measures costly. Taxing foreign digital entities would hurt Quebec’s small- and medium-sized businesses. Digital streaming monoliths, with their history of “aggressive tax avoidance,” would balk at signing up.

Yet the digital-sales taxes have instead been successful in compelling Big Tech and others to tax their offerings. As my colleague Zane Schwartz discovered, Facebook flubbed its goal of collecting sales tax on advertisements purchased through its physical offices in Canada by mid-2019. The lone exceptions: Quebec and Saskatchewan. 

Leitão, too, was taken aback by the distinct lack of pushback from the companies themselves. “I asked the question, ‘Has anyone talked to Netflix to find out what their position is?’ And nobody had. So we asked them, and to my surprise, they simply said, ‘Listen, whatever the law is, we’ll follow the rules,’” he said. (A Netflix spokesperson confirmed the company’s relative indifference to Quebec’s tax measures. Facebook has publicly said much the same.)

The Liberal government has since had a volte-face on digital taxes, promising to “work closely with the OECD to ensure that multinational tech giants pay their fair share,” according to Katherine Cuplinskas, spokesperson for Deputy Prime Minister Chrystia Freeland. The Liberals themselves project a $540-million payday in 2020–2021 alone, and a total of $2.5 billion or more each fiscal year between now and 2024.

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A back-of-the-envelope extrapolation of these numbers suggests that the federal government has already starved itself of something pretty close to a billion dollars by not implementing a digital tax at the same time as Quebec. Such is the price of not saying yes.