Law360 Quotes Peter Barnes on Challenges to Quebec Digital Tax

A Quebec tax aimed at remote sellers of digital products resembles efforts by U.S. states to capture the same category of revenue, but differs in one respect: Quebec’s proposed tax — which has come to be known as the “Netflix tax” — would place the Canadian province in the role of a nation.

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Peter Barnes, a professor of tax law at Duke University and a former tax counsel for General Electric, said those considering a challenge to the Quebec digital tax if it comes into effect would be “wasting their time and their money.”

The professor, who currently teaches a class on VAT, said that “fairness will soon require all sellers above a threshold to collect and remit consumption taxes.” U.S. sellers already are required to collect VAT on sales to Europe, and many U.S. states are seeking the same treatment, he said.

With the issue now before the U.S. Supreme Court in South Dakota v. Wayfair, the Supreme Court or Congress probably will soon require U.S. sellers to collect and remit consumption tax on sales to customers in other states, Barnes said. “If the Wayfair case doesn’t come out in favor of the states, which I think it probably will, my guess is Congress will act.”

Consumption taxes are a more straightforward way to tax digital transactions than the revenue-based measures being considered by the European Union and the OECD, the tax professor said.

“VAT cases are easier, I think, than the income tax issues raised in the OECD’s and the EU’s recent materials on whether a significant economic nexus is enough to force a company to pay income tax to a jurisdiction,” said Barnes. “With a consumption tax, we know exactly how much tax should be collected and remitted. With an income tax, we don’t know.”

Mr. Barnes is also Of Counsel to Caplin & Drysdale’s International Tax and Tax Controversies practice groups.

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Excerpt taken from the article “Quebec Seen As Imitating Nations With Its ‘Netflix Tax’” by Molly Moses for Law360.