Netflix, Amazon Face Retail Sales Tax Crackdown in Quebec

(Bloomberg) -- Quebec is getting serious about taxing Inc. and Netflix Inc.

Canada’s second-most populous province said Tuesday it would make the collection of the provincial sales tax mandatory for suppliers of goods and services based outside Quebec to put them on par with local rivals. Quebec expects the measures will enable it to recover C$155 million ($120 million) in lost revenue over five years, according to budget documents released in Quebec City.

A failure to collect taxes on online sales of goods and services to companies outside the province now costs Quebec about C$270 million annually, according to estimates by the provincial finance ministry. Most of the money, or C$158 million, pertains to goods such as shoes and clothes purchased abroad, Finance Minister Carlos Leitao said Tuesday.

An agreement between Los Gatos, California-based Netflix and the federal government over filming in Canada provoked widespread outrage in Quebec last year, in part because it didn’t subject the company to a sales tax. That sparked the ire of Canadian media companies that must apply the tax, including on streaming units they set up to compete with Netflix.
“For services, Netflix and others, we are proposing legislative measures that will force these companies to register for our provincial sales tax regime,” Leitao said Tuesday at a press conference in Quebec City. “They will need to collect the sales tax and to send it to us.”

For companies selling goods online, Quebec will follow the approach recommended by the Organization for Economic Co- Operation and Development, which is to collect taxes at the border, Leitao said.

Starting Jan. 1, foreign companies that sell more than C$30,000 a year in taxable supplies of goods or services to Quebec consumers will be required to register for the provincial sales tax, budget documents show. Until now, suppliers without a physical or significant presence in the province weren’t required to register for the tax, or to collect or remit it.

Canadian companies that don’t have a physical or significant presence in Quebec will get eight more months to adjust: they won’t be required to register for the provincial sales tax until Sept. 1, 2019.

“Given the Canadian economy’s high level of integration, a potentially significant number of businesses of all sizes may be impacted,” the finance ministry’s document says.

Premier Philippe Couillard, who is running for re-election in October, is following up on a pledge to collect the money from online sellers after Canadian Prime Minister Justin Trudeau ruled out additional taxes. The C$270 million that is eluding Quebec’s coffers represents about 1.3 percent of annual sales tax receipts, according to the government.

Other countries that have adopted similar taxes on foreign companies include Australia and Singapore, according to the budget.

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