The Friends of Canadian Broadcasting asked the Commons Finance committee last week to make Google and Facebook contribute to the salvation of Canadian culture.
The argument goes like this. Much of the advertising ($5.6 billion) that once supported newspapers, magazines and TV in Canada has migrated to digital platforms where Google scoops up half and Facebook 14%, while everyone else gets table scraps.
The Friends want to apply Section 19.1 of the Income Tax Act to internet advertising. This measure, developed in 1976, disallows the deductibility of advertising spending on foreign publications and broadcast outlets. It was designed to keep Canadian advertising dollars on Canadian TV stations rather than on border stations, and magazine advertising in Maclean’s rather than Time magazine. Canadian advertisers can still use the border stations and U.S. publications; it’s just more expensive. The Friends say Section 19.1 shifted 10% of TV ad buys from border stations to Canadian-owned players.
Applying 19.1 to the web would presumably keep some portion of the $5.6 billion digital advertising spend within Canada. If it shifted 10%, that would be a significant win for Canadian media.
The Friends’ proposal is representative of a parcel of ideas circulating the globe in hopes of preventing large (and mostly U.S.-based) internet companies from sucking all kinds of revenues out of domestic markets, leaving little behind in the way of tax revenue, jobs, or investment.
The proposal is bound to gain traction among those wanting to save Canadian media. It has the advantage of not privileging old-media websites over digital-only websites, as a lot of the proposals to help newspapers would do. It does not cost the government anything (in fact, in should increase federal revenues).
Its major drawback is that this government is very tight with Google and Facebook, and it would seem (thus far) to prefer taxing Canadian broadband networks.