Jan 26th, 2023
Mar 29th, 2018
By Louis-Frédérick Côté
It has been decided by the Québec Government to change the Québec Sales Tax legislation (hereinafter ‘’QST’’) in order to force Non-Resident suppliers (for instance Netflix) to register under the QST and collect the QST from the consumers in Québec. These proposed changes have come to be known as the “Netflix Tax”. So Netflix who collects 10$ from a client in Québec will soon be obliged to collect 9.975% on said 10$ and remit said 9.975% to Revenu Québec. Also, non-residents suppliers who are nevertheless residents of Canada will also be required to register under the QST and collect the QST on tangible property that they supply to Québec consumers.
We have the following comments:
In order to amend the QST legislation, new legislation must be introduced in the Québec National Assembly. Considering that there will be a general election in Québec in October 2018, the changes may not happen in time before the election. We do not know what will happen if the Liberals are not re-elected;
The above proposed changes relate to the QST, they do not apply in any other Province in Canada and do not impact the GST/HST (the Federal Sales Tax); the Federal Government had nothing in its budget this year on the Netflix Tax; we do not know if Québec’s point of view will have an impact on the Federal government or on other Provinces in Canada;
Basically, there are two ways to target a Non-Resident selling services or intangibles (for instance access to a website or a licence to software):
Force the Non-Resident to register under the local legislation and force the Non-Resident to collect the local tax and remit said tax; or
Force the financial intermediaries between the consumers and the Non-Resident to collect the local tax on behalf of the Non-Resident;
Québec has decided to force the Non-Resident to register under the QST system, collect the QST from its clients and remit said tax to Revenu Québec; a new simplified registration system will be put in place; also, these new concepts will also apply to electronic platforms which control the transactions;
Regarding corporeal property, the QST will be collected at the Border, the same way it was done in the past; this being said, improvements are expected at the Border because it may not have been done correctly in the past;
We know Australia implemented changes similar to what Québec is in the process of trying to do; apparently, in the Australian context, the Non-Residents accept to register, collect the local tax and remit said local tax;
We believe the concept of forcing Non-Residents to register, collect the local tax and remit said local tax will work because, from a branding, marketing and public relation point of views, said Non-Resident do not want to be seen as persons not complying with the local laws, they want to be seen as good corporate citizens everywhere; we understand that Amazon accepted to collect the local tax in many States in the USA although it had no presence in said States but was selling in said States; this is an example that although the local Authorities may not have the constitutional powers, they will nonetheless be able to convince the Non-Residents to register, collect and remit; and
The above mentioned changes would come into force on January 1, 2019 for suppliers who are non-residents of Canada and on September 1, 2019 for the suppliers who are non-residents of Québec but nevertheless residents of Canada.