OTTAWA – The Senate Standing Committee on Transport and Communications this week met representatives from the Canadian Revenue Agency (CRA), Canadian Heritage and the Department of Finance to talk about the deductibility of foreign internet advertising, as raised by the Friends of Canadian Broadcasting in a new report which suggest closing a certain loophole.
Cartt.ca reported on this last week, where Friends suggests advertising on foreign online platforms like Facebook and Google should not be tax deductible, bringing it in line with how purchasing ad time on American TV and radio stations is not deductible for Canadian companies.
Unsurprisingly, the government is not convinced changing this tax treatment constitutes the right solution to the problem where an ever-increasing share of advertising is going to non-Canadian media companies.
“It is recognized that advertising revenues are shifting towards platforms that businesses consider the most cost-effective, platforms that are largely not Canadian, and that these trends create revenue pressure on Canadian media.” said Miodrag Jovanovic, associate assistant deputy minister of the tax policy branch at Finance Canada.
Most recognize “the general disruption across the cultural industries brought on by new technologies, evolving business models and changing user behaviours and expectations has raised a wide range of increasingly complex questions for policy makers, not least, the nature and extent of government intervention that is necessary and appropriate,” added Owen Ripley, acting director general of the broadcasting and digital communications branch at the Department so Canadian Heritage.
Normally, companies can deduct advertising expenses, but measures introduced in the 1960s and 70s made advertising on non-Canadian media to reach Canadian customers non-deductible expenses, a switch made in order to increase revenues to Canadian media. In 2015, 390 companies reported non-deductible advertising spends with U.S media, creating an additional $500,000 in tax revenues.
Online advertising is not covered by this measure so Friends is proposing to fix that discrepancy with the hope some funds would flow back to Canadian media.
However, as Mr. Jovanovic asked, would “closing the loophole” change the companies’ behaviour or just increase their tax burden while not helping broadcasters? Friends’ research had estimated that only 10% of the money spent with the online giants would shift back to Canadian media.
The government departments also highlighted what the Canadian government was already doing in terms of support for culture, media and linguistic minorities. The ongoing Creative Canada exercise and the review of the Broadcasting Act came up and it was suggested that the Friends proposal could be examined in that context.
“We all know that Facebook and Twitter… are selling a service, and they are collecting millions of dollars that are impacting the national media.” – Senator Rosa Galvez
The so-called Netflix tax was also raised, and Jovanovic said Canada’s position on this is to take our time to analyze this very complex issue and to go ahead at the same pace as the other member countries (in the OECD.)
Some senators, however, expressed frustration at the perceived lack of response on the part of officials. Independent Senator Rosa Galvez said “I must be honest and say that I’m very disappointed because everyone is aware of a big problem here. We all know that Facebook and Twitter… are selling a service, and they are collecting millions of dollars that are impacting the national media.
“We are listening to very old definitions of broadcasting, dates from so far away, and you are saying the OECD is doing things at a turtle’s pace and we are waiting there to see what happens. I am a professor and it sounds like procrastination, and I’m sad to hear that. Where is your initiative? What are you doing to get ahead?”
Committee chairman, Senator David Tkachuk, came to the defence of the witnesses by noting these folks were not the policy makers just bureaucrats. Liberal Independent Senator, Dennis Dawson added, “we will talk to politicians.”
