‘Netflix Tax’ | A money pit for small and medium-sized businesses that were paid by mistake

Since 2019, Serge Plant has paid $68,000 in taxes to advertise on Facebook. Like any business owner, he was expected to be compensated by Quebec and Ottawa. Last summer, he knew that would not be the case.

“I was shocked when I saw my money,” says Blunt. I’m in trouble, I need my money. »

At his request, we have changed the name of the Montreal businessman, who fears reprisals from Facebook, from whom he bought ads for $480,000 a year ago. “If they arrest me, I’m bankrupt. But I’m not alone in my case.

The accounting firm PSB Boisjoli, in Mount Royal, is advising another firm that is trying in vain to recover $167,000 in QST and GST paid for advertising on Facebook. A flood of similar cases is expected with the resumption of tax audits by Revenu Québec, which have been slowed by the pandemic, said Laurie Palmer, tax associate at PSB Boisjoli.

The number of small and medium-sized businesses that are unaware of this rule must be enormous. I probably don’t know yet. The company sent a letter to its customers last August alerting them to this complex issue.

Exemption unknown

It is clear that the main companies affected will be the smallest ones, without significant accounting resources, doing e-commerce and buying advertisements on platforms such as Facebook and Google.

If they do not request an explicit exemption, the Quebec sales tax (QST) since 2019 and the goods and services tax (GST) since 2021 have been added to the invoice of these companies. “We mainly talk about Facebook and Google because they are the most problematic, and they are two major players in online advertising”, identifies Mr.^me Palm. We mainly deal with small and medium-sized businesses, which sometimes only have an accounting clerk, and whose advertising purchases are sometimes subject to the marketing department. Is it reasonable to think that all SMEs know the tax rules? no. »

1366 foreign companies

This complicated situation arose from the Couillard government’s decision in 2018 to subject foreign digital platforms to a Quebec sales tax. Entered into force on 1^Verse January 2019. Ottawa did the same with the GST on January 1^Verse July 2021; Quebec administers both taxes.

These foreign platforms had to register in a specific register, called in Quebec the “List of suppliers outside Quebec registered in the TVQ file”. At last count, 1,366 foreign companies had done so. All the digital giants are included, from Airbnb to Amazon via Netflix, Facebook, Twitter and Google.

They all add taxes to their customers’ bills and then pass them on to governments. However, Canadian business clients of these platforms must explicitly request an exemption by providing their registration number. If they don’t, taxes will also be levied, like all consumers. A company spokesperson said Facebook explained this on its Businesses page.

This is where many small businesses who were unaware of these regulations have found themselves trapped.

In Quebec, as elsewhere in Canada, any company that pays the GST to its Canadian suppliers can have this amount refunded or credited by the governments. But this mechanism does not apply to foreign companies, even registered in the State.

At Google, Montreal spokeswoman Louisa Stanic confirmed that the search giant complies with all tax laws. On the other hand, “we are aware that a certain number of companies in Quebec have become frustrated with the current process of taxation and exemption with regard to non-resident companies”, she declared in a email to Journalism. We work with the local tax authority to resolve these issues on behalf of our customers. »

Carlos Leto “amazed”

Some SMEs requested and obtained their tax refund when filing their income tax return, but are exposed to penalties in the event of an audit. Others, like Serge Plante, learned of the existence of this rule during the administrative review of their file.

Laurie Palmer explains: “The law in this case stipulates that you cannot request a refund from Revenu Québec and that you have to go back to the supplier. The supplier must then return to Revenu Québec.

At Revenu Québec, the department’s spokesperson, Marie-Pierre Blair, believes that “at present […]The magnitude of the situation is limited in a number of cases.

“The QST law stipulates that no request for a refund of tax paid in error can be made to Revenu Québec,” she confirms by email. She adds that since 2019, the agency has been increasing meetings with “non-resident mission operating platforms” to reimburse companies. “For example, in the first quarter of 2019, Google and Facebook sent communications to their customers asking them to add their subscription status to their customer profile,” explains the portfolio manager.

She summarizes that this situation may come from a “misunderstanding” of companies that have not informed foreign platforms of their special status.

Carlos Letau, the public finance spokesman for the Liberal Party of Quebec who imposed a “Netflix tax” at the time, admits his surprise.

He stressed that “even the tax experts were not aware” of this situation, which he does not hesitate to describe as “unfair”.

“I don’t understand that Revenu Québec is reluctant to reimburse SMEs for a tax that they did not have to pay. Obviously, Google and Facebook sent the tax to the government and are now asking them to accept it. They could also have told them at the time of payment that it was not necessary.

Laurie Palmer and Irina Glavina think there is a solution to this complex situation: section 94 of the Tax administration law. It allows the government to intervene in the ‘public interest’ and ‘spare the public from harassment, oppression or serious injustice’.

“There is more than one taxpayer involved and the amounts at risk are very significant,” Mr . estimates^me Palm.