As lockdowns became commonplace across the globe, we stayed indoors and started to watch (quite a lot) of online content on our favourite streaming platforms. Those platforms enjoyed a surge in growth, and governments (who had to subsidise their domestic entertainment industries) took note.
The success of these streaming platforms has led to the introduction of a series of streaming taxes, or levies, as governments assess additional revenue options in the ongoing battle to recover from the COVID-19 pandemic’s impact. In doing so, most tax jurisdictions followed the pioneers in this regard, France and Germany, that had implemented their levy regimes pre-2020. The rampant success of streaming platforms during the lockdown merely accelerated the introduction of these levies.
Pandemic changed consumption habits
Streaming platforms have been major beneficiaries of the lifestyle changes triggered by government responses to the pandemic. In 2020, streaming subscriptions rose 26% globally as we changed our consumption habits. Research carried out by Forrester states that this is not a “mere blip” but a hint to the future where even going to the movies may be considered a niche pastime.
This success has attracted the attention of tax jurisdictions in desperate need of new sources of revenue due to the impact of the COVID-19 pandemic on traditional resources. The result, in certain tax jurisdictions, has been a series of levies based on the turnover of streaming platforms.
The levies are applied by tax jurisdictions to complement (not to replace) existing indirect taxes (e.g., VAT and GST) as well as new proposals such as Digital Services Tax (DST). They are also used to raise funds for domestic arts, cinema, and culture fields, areas severely impacted by the lifestyle changes imposed by pandemic-related government directives.
Levies on streaming platforms
Here we outline some of the plans and proposals in various tax jurisdictions:
Since January 1, 2018, international streaming platforms with customers in France have been required to contribute 2% of their French revenues (also known as a video tax) to fund French cinema production and promotion. The levy, which is an extension of a 1993 law aimed at VHS and DVDs, raised EUR10 million in 2018. In June 2021, the French government went a step further when issuing a decree stating that streaming platforms must invest 20-25% of their French revenues in the production of local content.
A levy has been in place in Germany since 2014. Streaming platforms that earn revenue in excess of EUR500,000 in Germany are required to pay the levy to fund Germany’s national film fund.
Switzerland introduced a levy in September 2021 on streaming platforms. The aim of the levy is to fund domestic Swiss cinema production. The precise nature of the levy is set at 4% of the platform’s Swiss market turnover. This particular levy is positioned as an “investment” in Swiss cinema as there are options available. The platforms can ‘invest’ 4% of their Swiss turnover or be subject to the 4% levy.
There is a plan for a new 1% levy, or Cinema Law, on streaming platforms with the funds recouped to be delivered to Portugal’s Cinema and Audio-visual Institute. The levy is to be paid by the end of April each year. The current plan is to introduce the levy in April 2022.
It is not dissimilar to France’s ‘video tax’ as it is intended to boost local cinema services. It is not clear yet how the levy will be paid or indeed if it is payable via a streaming company’s VAT return.
In 2020, the authorities in Poland introduced a new levy on streaming services, again the approach closely mirrors what France introduced 2018 with the aim of using revenues from the levy to boost domestic cinema production.
In late June 2021 Canada’s House of Commons passed an amendment to its Broadcasting Act (first introduced in November 2020) to tax streaming platforms and reroute the funds collected to the production of Canadian content. The key aim of this amendment was for streaming platforms to contribute to the Canada Media Fund which exists to foster, promote, and finance Canadian content, across all audio-visual platforms. Back in 2017, a large multinational streaming platform struck a CAD500 million deal to support Canadian content production. However, given the evolution of streaming platforms, and their increasing popularity, Canada realised it could not continue with platform-by-platform deals and needed to modernise its legislation.
Stream of levies to become a tidal wave
As governments attempt to formulate plans to recover from the pandemic there is a need to kickstart local cinema/entertainment industries. Such levies are seen as a key part of this reboot by tax jurisdictions around the globe. There is also a growing number of states in the U.S. that have, or plan to, introduce specific taxes on streaming services. It is clear this is just the beginning of a new taxation approach. We can expect a series of similar tax rule changes as governments grapple with their pandemic recovery and the need to raise revenue to fund this recovery.
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