Summer of our digital discontent

November 1, 2019

Facebook, Google, Apple, Amazon, Netflix and other tax-avoiding internet giants were in the news a lot this summer. Much of the credit for this can go to Emmanuel Macron. Despite pushback from big tech and U.S. President Donald Trump, the French president announced plans at this year’s G7 summit to introduce a 3% tax on digital revenues. Trump only backed down after Macron agreed to pay back some of these revenues once the OECD reaches a new agreement for taxing digital giants over the next year.

In fact, Macron’s 3% tax, which was backed by the Liberal Party in the federal election, is too meagre. It lets these super rich companies escape any real tax accountability. In Canada, for example, harmonized sales taxes hover around 13% depending on the province. If we simply required the digital giants to collect it on their domestic sales (which we don’t), governments would accrue four times what Macron wants to charge.

Prior to the election, the federal government had said it wouldn't act until the OECD presents its digital plan, an initial draft of which was expected in October. The problem with this approach is that the OECD tax chief has admitted there will be no “massive shift” in revenues, no “big losers or big winners” from the plan. “Countries should relax a bit on that one,” he said in mid-September.

Some countries don’t feel like waiting. In fact, there would have been no progress at the international level if individual countries hadn’t proceeded on their own, forcing some kind of international co-ordination. Quebec and Saskatchewan have applied taxes to imports of digital services, including streaming subscriptions. There’s no reason why the federal government shouldn’t have moved forward either.

This has never been about just slapping a new tax on the digital giants. For Canada, the question is why we should treat mostly foreign-owned big tech firms differently than every other Canadian company. A digital tax is about fairness, but the implications of not taxing these companies go much further—affecting the news we consume, the strength of our cultural industries and even our democratic institutions.

U.S.-based social media and streaming services, which now include Apple TV+ and Disney Plus, dominate online content in culture and in news. Yet none of them are required to abide by minimal Canadian content and language rules that apply to major broadcasters such as Rogers, Bell, Quebecor and Shaw. These Canadian firms must put 5% of their revenues toward new Canadian programming, for example.

Canada’s film and television producers and their viewers, particularly in Quebec, are understandably frustrated that Netflix does not have to produce new Canadian content or showcase older Canadian programming. Former Heritage Minister Melanie Joly’s deal with the popular streaming site, which included a non-binding promise by the firm to spend $500 million in Canadian programming over five years, has no commitment to French programming at all.

Had the federal government simply applied a sales tax to Netflix’s six million subscriptions in Canada it would have pulled in $500 million over five years. Facing pressure to rethink the arrangement, Joly’s successor as heritage minister, Pablo Rodriquez, recently said the government will change its policy toward digital giants—no matter what an external panel reviewing Canadian broadcasting recommends in January.

With respect to online news the situation is just as dire. Some 70–80% of online advertising in Canada, including a majority of all federal government ads, now goes to Google and Facebook—sales and income that are, for the most part, tax-free for the companies. Google even nabbed a quarter of all advertising in any media in 2017. No wonder Canadian newspapers are closing down, the latest being the Quebec chain Capital Media, which had to be propped up by the Quebec government. Over 250 newspapers have closed in Canada over the last 10 years, with many others reduced to websites.

The advertising is merely following the eyeballs. And here is where lack of regulation becomes a much bigger problem. More and more people now get their news over Facebook, WhatsApp, Google, YouTube, Twitter and Instagram. All these U.S.-based companies control what you see (including news and advertising) and in what order using closely guarded algorithms.

In the broader sense of surveillance capitalism, which Shoshana Zuboff has so brilliantly written about (see the May/June issue of the Monitor), all these digital giants, untaxed and unregulated, know so much about everything we do and think that they can manipulate our data to better control our lives for profit. With this increased control, our limited democracy—not just business practices—are under increased threat.

Canada and the provinces along with big cities have to react strategically. The old policy watchwords of regulation, taxation and public ownership are still the best remedies. If we do not react in a hurry, like we should be reacting toward climate change, it may become too late at some point to safeguard our cultural protections and the many valuable, top quality industries and jobs that depend on them.

We cannot let the digital giants define who we are and where we are going as a country.

John Anderson is an independent reseracher and consultant, and author of the CCPA report An Over-the-top Exemption.