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 wouldn’t be the case.
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“I was shocked when I saw my money,” says Mr. Blunt. I’m in trouble, I need my money. »
At his request, we changed the name of the Montreal-area businessman, who fears reprisals from Facebook, from whom he bought ads worth $480,000 a year ago. “If they stop me, I am bankrupt. But I am not alone in my case.”
Accounting firm PSB Boisjoli, in Mount Royal, advises another firm trying in vain to recover $167,000 in QST and GST paid for Facebook advertising. We expect a flood of similar cases with the resumption of tax audits by Revenu Québec, which have been slowed by the pandemic, estimates Laurie Palmer, tax partner at PSB Boisjoli.
The number of small and medium businesses that are not familiar with this rule must be huge. Most likely do not know yet. The company sent a letter to its customers last August alerting them to this complex issue.
It is clear that the main companies affected will be the smaller ones, without significant accounting resources, doing e-commerce and buying ads on platforms such as Facebook and Google.
If they do not request an explicit exemption, Quebec Sales Tax (QST) since 2019 and Goods and Services Tax (GST) since 2021 have been added to the bill for these companies. “We mainly talk about Facebook and Google because they are the most problematic, and they are two major players in online advertising,” M identifiesme Palmer. We deal mainly with small and medium businesses, which sometimes have only an accounting clerk, and whose advertising purchases are sometimes subject to the marketing department. Is it reasonable to think that all SMEs are familiar with the tax rules? no. »
1366 foreign companies
This complicated situation arose from the decision in 2018 by the Couillard government to subject foreign digital platforms to a Quebec sales tax. Entered into force on 1Verse January 2019. Ottawa did the same with GST on January 1Verse July 2021; Quebec administers both taxes.
It was commendable at first, thinks PSB Boisjoli’s Irina Galvina. What governments were targeting were individuals like you and me consuming Netflix, not companies.
Irina Glavina, from PSB Boisjoli
These foreign platforms had to register in a specific registry, called in Quebec the “List of Suppliers outside Quebec registered in the QST 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 customers of these platforms must explicitly request an exemption by providing their registration number. If they don’t, taxes will be collected as well, like all consumers. A spokesperson for the company said Facebook explains this on its Companies Page.
This is where many small businesses that were not familiar with this regulation have been trapped.
In Quebec, as elsewhere in Canada, any company that pays GST to its Canadian suppliers can have this amount reimbursed or credited by 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 respect to non-resident companies,” she stated in an email to Journalism. We work with the local tax authority to resolve these issues on behalf of our customers. »
Carlos Leto “Amazed”
Some SMEs have requested and received their tax refund when they file their income tax return, but are subject to penalties if an audit is conducted. Others, such as Serge Plante, learned of the existence of this rule during the administrative review of their file.
Laurie Palmer explains: “The law in this case states that you cannot request a refund from Revenu Québec, and you have to go back to the supplier. The supplier must then go back to Revenu Québec.”
In Revenu Québec, ministry spokeswoman Marie-Pierre Blair believes that “at present […]The scale of the situation is limited in a number of cases.”
“The QST Law states that no request for reimbursement of erroneously paid tax can be made to Revenu Québec,” she confirms by email. She adds that since 2019, the agency has been ramping up meetings with “non-resident mission operating platforms” to reimburse companies. “For example, in the first quarter of 2019, both Google and Facebook sent communications to their customers asking them to add their registration status to their customer profile,” explains the wallet 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 Quebec Liberal Party’s public finance spokesman who imposed a “Netflix tax” at the time, admits to his surprise.
In 2019, we didn’t really think about that, meaning these companies don’t have a physical presence in Quebec, so SMEs don’t have to pay QST and GST.. I did not think that this information will not be transmitted. It is a lack of communication.
Carlos Leto, in an interview with Journalism
He pointed out that “even 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 they did not have to pay. Obviously, Google and Facebook have sent the tax to the government and are now asking them to go through with it. They could also have told them when the payment was made that it was not necessary.”
Laurie Palmer and Irina Glavina believe there is a solution to this complex situation: Article 94 of Tax Administration Law. It allows the government to intervene in the “public interest” and “to spare the public any serious harassment, oppression or injustice.”
“There is more than one taxpayer involved, and the amounts at risk are very large,” M . estimatesme Palmer.
- Number of Quebec companies with fewer than 200 employees in June 2021
- Percentage of retail companies that were doing e-commerce in 2021.
- 7.4 billion
- Estimated digital advertising revenue for Google and Facebook in 2019 or 80% of the total
Canadian Media Focus Research Project
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