“Netflix Tax” | A money pit for SMEs who have paid by mistake

Since 2019, Serge Plante has paid $68,000 in taxes for advertising on Facebook. Like any business owner, he expected to be reimbursed by Quebec and Ottawa. Last summer, he learned that would not be the case.

Karim Benessaieh
The Press

“I bawled a shot when I saw my finances,” says Mr. Plante. I’m in trouble, I need my money. »

At his request, we have changed the name of this Montreal-area entrepreneur, who fears reprisals from Facebook, from which he bought $480,000 worth of advertising a year ago. “If they block me, I go bankrupt. But I am not alone in my case. »

The accounting firm PSB Boisjoli, in Mount Royal, is advising another company that is trying in vain to recover the $167,000 in QST and GST paid for advertising on Facebook. And we expect an avalanche of similar cases with the resumption of tax audits by Revenu Québec, slowed down by the pandemic, estimates Lorie Palmer, tax partner at PSB Boisjoli.

“The number of SMEs that are not aware of this rule must be enormous. Most probably don’t even know it yet. The firm sent a letter to its clients last August alerting them to this complex issue.

A little-known exemption

The main companies affected would obviously be the smaller ones, without significant accounting resources, doing e-commerce and buying advertising on platforms like Facebook and Google.

If they have not expressly requested an 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, they are major players for online advertising, specifies M^me Palmer. We mainly deal with SMEs, which sometimes only have an accounting clerk, whose advertising purchases sometimes come under the marketing department. Is it reasonable to think that all SMEs are aware of tax rules? No. »

1366 foreign companies

This imbroglio was born from the decision taken by the Couillard government in 2018 to subject foreign digital platforms to the Quebec sales tax. It entered into force on 1^er January 2019. Ottawa did the same with the GST on January 1^er July 2021; it is Quebec that manages the two taxes.

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

All add taxes to their customers’ bills, which they then pass on to governments. Canadian business customers of these platforms, however, must explicitly request an exemption by providing their registration number. If they don’t, they are also charged the taxes, like all consumers. Facebook, said a Montreal spokesperson for the company, explains it in a page for businesses.

This is where many small businesses who were unaware of this regulation have been trapped.

In Quebec, as elsewhere in Canada, any company that pays QST and GST to its Canadian suppliers can have this amount reimbursed or credited by the governments. This mechanism, however, does not apply to foreign companies, even registered in the country.

At Google, Montreal spokesperson Luiza Staniec assures that the search engine giant complies with all tax laws. On the other hand, “we are aware that a certain number of companies in Quebec have experienced frustration with the current process of taxation and exemption with regard to non-resident companies,” she stated in a email sent to The Press. We work with the local tax authority to resolve these issues on behalf of our clients. »

Carlos Leitao “surprised”

Some SMEs have 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 an administrative review of their file.

“The law provides in this case that you cannot request a refund from Revenu Québec, you have to turn to the supplier, explains Lorie Palmer. The supplier must then turn to Revenu Québec. »

At Revenu Québec, spokesperson Marie-Pierre Blier believes that “at present […]the extent of the situation is limited in number of cases”.

She confirms by e-mail that “the QST law provides that no request for reimbursement of the tax paid in error can be filed with Revenu Québec”. Since 2019, she adds, the agency has been increasing meetings with “important non-resident companies operating platforms” so that they reimburse the companies. “As an example, in the first quarter of 2019, Google and Facebook sent communications to their customers asking them to add their registered status to their customer profile,” explains the portfolio manager. word.

This situation, she sums up, would come from a “misunderstanding” of the companies which did not inform the foreign platforms of their particular status.

Carlos Leitão, Quebec Liberal Party spokesman for public finances and who instituted the “Netflix tax” at the time, admits his surprise.

He notes that “even tax experts were not aware” of this situation which he does not hesitate to describe as “injustice”.

“I don’t understand that Revenu Québec is reluctant to reimburse SMEs for a tax they didn’t have to pay. Obviously, Google and Facebook sent the taxes to the government and are now telling them to get on with it. They could also have told them when making the payment that it was not necessary. »

Lorie Palmer and Irena Glavina believe that there is a solution to this imbroglio: Article 94 of the Tax Administration Act. It allows government discretionary intervention for “the public good” and “to spare the public serious inconvenience or individuals from oppression or injustice.”

“There is more than one taxpayer concerned, and the amounts at stake are quite large”, estimates M^me Palmer.