Québec's new digital sales tax begins January 1, 2019, with non-resident digital suppliers targeted

The Québec government closely follows the OECD's International VAT/GST guidelines in designing its new tax on digital services supplied by non-resident businesses.

Sep 27, 2018

In its March 2018 budget, the Québec government revealed its digital sales tax plans. From January 1, 2019, non-resident suppliers of digital services to Québec-consumers will have to register, collect, and remit Québec Sales Tax (QST) to Revenu Québec.

Quebec digital services sales tax

The design of the new rules closely follows International VAT/GST guidelines recommended by the Organisation for Economic Cooperation and Development (OECD). According to the OECD, the Guidelines present a “set of internationally agreed standards and recommended approaches”.

The taxation of the digital economy is one such approach and the guidelines recommend, for example, the creation of a simplified registration system for non-resident suppliers of digital services as the Québec government has done.

What is the Québec government proposing?

In line with a growing international trend on digital economy taxation, the Québec government is proposing that, from January 1, 2019, non-resident digital service suppliers (e.g. digital downloads, streaming, etc.) will have to register for, collect, and remit QST.

Non-resident digital service suppliers (including digital platforms) will have to register with a simplified system for the purposes of collecting and remitting QST. Registration is dependent on the supplier exceeding an annual sales threshold of CAD $30,000.

To confirm the end customer’s location the Québec government will demand that two pieces of non-contradictory evidence be collected by the non-resident supplier. Accepted pieces of evidence — according to the additional information provided in the Québec budget — include the customer’s “billing address or personal address, the IP address of the device used or another method of geolocation, payment-related bank information or the billing address used by the bank, information from a SIM (Subscriber Identity Module) card, the place of the person’s landline, or any other relevant information.”

New QST registration portal for non-resident digital businesses 

In September 2018 a new QST registration platform for non-resident digital businesses was revealed, link here. Non-resident businesses that supply digital services to Québec-based customers, and exceed the registration threshold, must register before January 1, 2019.

Registration involves the creation of identifiers (User ID) for businesses, in addition to passwords and business email for correspondence. The business email will be used to transmit communications from Revenu Québec and the registered business related to tax obligations. 

Canadian stance on digital economy taxation

Québec’s approach to the taxation of the digital economy mirrors international digital tax trends where over 50 jurisdictions have now introduced such rules. However, it differs from the Canadian federal approach.

An internal Canadian federal government document, revealed in January 2017, raised the possibility of a Canadian sales tax on foreign-supplied digital services. The 2017 government document — as reported by CBC — stated that the lack of such a tax “not only represents a significant loss of potential tax revenue for government, but it can also place domestic digital suppliers at an unfair competitive disadvantage.”

This mirrors the reasoning behind Québec introducing such rules, and it is reflected in moves by over 50 tax jurisdictions across the globe. These moves are an attempt by tax authorities to level the playing field between foreign and domestic digital service suppliers.

An August 2017 report from respected Canadian think-tank, the C.D. Howe Institute, recommended that Canada amend its Excise Tax Act to apply to businesses that supply digital goods and service for consumption within Canada. The report states: “Canada should make foreign companies equal to domestic companies, tax-wise, with the same registration and reporting requirements.”

The conclusion of this particular report, titled ‘Bits, Bytes, and Taxes: VAT and the Digital Economy in Canada’, is that foreign providers of online services enjoy a tax advantage over Canadian providers. More here.

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