Facebook will start charging sales tax on ads purchased through its physical offices in Canada, becoming the first technology giant to do so.
The move has the potential to generate millions in revenue for government and will undoubtedly put pressure on other foreign-based streaming and digital giants like Netflix, Google and Amazon.
By mid-2019, both Facebook and Instagram will charge GST as part of a previously-announced move towards a local selling structure in countries where the company has an office to support sales to local advertisers.
“In simple terms, this means that advertising revenue supported by our local teams will no longer be recorded by our international headquarters in Dublin, but will instead be recorded by our local company in that country,” wrote CFO Dave Wehner in a public post last December.
Wehner said moving to a local selling structure provides more transparency to governments and policy makers who have called for greater visibility over the revenue associated with locally-supported sales in their countries.
Thus far, Prime Minister Justin Trudeau has taken a steadfast stance against taxing foreign-based digital media, saying he doesn’t want the tax passed on to consumers.
The provincial government in Quebec has already passed legislation to tax foreign online services and will start collecting QST on subscriptions from the likes of Netflix, iTunes and Spotify, starting Jan. 1, 2019.
Just last week, The Senate Committee on Transport and Communications recommended the federal government revisit tax measures that right now allow advertisers to write off foreign-ad spending. The committee’s report The Tax Deductibility of Foreign Internet Advertising in Canada recommends the government study Section 19 of the Income Tax Act, which makes advertising in newspapers, magazines and online publications a tax-deductible expense.
Foreign-based companies like Facebook and Google now account for as much as 80 per cent of Canadian online advertising revenues, and the report suggests that changing tax laws could help level the playing field for traditional Canadian broadcast and print media outlets.
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