Screenshots could cost Meta dearly in Canada

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Canada's government wants Meta Platforms to pay for the link tax after all. The operator of Facebook and Instagram is to pay a possible nine-figure sum because users are circumventing the news block imposed by Meta in Canada. Since December, users in Canada no longer see hyperlinks to news; instead, they now post screenshots of news articles, copy their text into their own posts, or link to posts in other (non-taxed) social networks, where a hyperlink to the news source is then waiting.

According to the minority government, which is led by the Liberal Party and supported by the Social Democrats, Meta thus fulfills the criteria of the link tax introduced in December: making news available. This is not about copyright; breaking the law by publishing other people's works would have to be dealt with separately and has nothing to do with the link tax.

The link tax is a failed attempt to force two companies to finance around 30 percent of the total cost of creating news content in Canada. Google and Meta were supposed to pay well over 300 million Canadian dollars (over 200 million euros) a year for letting their users link to news, even if the news was only available in a livestream or behind a paywall.

Potemkin tax

But so far, no one is paying Canada's link tax. Meta has blocked hyperlinks to news sources on its services in Canada, which are already detrimental to business. Media researchers estimate that this costs Canadian media companies eleven million views a day. Google threatened to shut down its ad-free service Google News Canada, whereupon the government granted an exemption from the link tax. Google pays a small amount into a fund, but no one pays the controversial link tax. Due to the lack of traffic from Facebook and Instagram, news publishers are suffering significant revenue losses and the death of newspapers continues. Media associations have been lobbying for the link tax for years.

The Canadian government is angry with Meta and has launched an investigation by the competition authority. And now the responsible Minister of Culture, Pascale St-Onge, has signaled to the actually independent regulatory authority CRTC (Canadian Radio-television and Telecommunications Commission) to please initiate link tax proceedings against Meta because of the posted screenshots. The regulatory authority responded with an invitation for someone to file a complaint and provide evidence.

In fact, the text of the law is likely to cover the government's interpretation: The offense of making news content available is so broad that even the reproduction of news items in the form of screenshots or quotes can trigger the tax – probably even if that violates Meta's terms of use. It is unclear whether hyperlinks to other services, which in turn link to news sites, are also covered.

Censorship will be complex

It is also unclear how Meta can defend itself against users violating copyright and triggering the link tax through their postings. Theoretically, even a single posting that slips through could result in a high tax burden, as it is not based on turnover, profits or the number of postings. The amount of the payment is to be determined in negotiations between Meta and media companies; if this fails, the regulatory authority is to set an amount. The government expects more than 100 million dollars.

Until these proceedings are concluded, neither Meta nor the publishers know how many millions are actually involved. And by the time this is known, the tax could already have been abolished. The opposition Conservatives have promised to abolish the link tax (as well as the carbon tax) if they come to power. Opinion polls predict a landslide victory for the party. Elections are expected in 2025.

Google imposes surcharge for digital services tax

Meanwhile, the current government introduced another online tax at the end of June, which was also proposed in principle by the Conservatives: If a company that generates more than 750 million Canadian dollars in annual revenue worldwide generates revenue in Canada from the operation of online marketplaces, social networks, the placement of online advertising or the exploitation of user data, it must pay three percent of this Canadian revenue as a digital services tax. An exemption applies to the first 20 million dollars annually.

The amounts have been chosen such, that, as far as possible, no Canadian companies have to pay the digital services tax, but US companies do. The US government is therefore preparing retaliatory measures. In the end, Canadian companies are likely to pay the lion's share of the bill: Google Ads is levying a Canada surcharge of 2.5 percent starting in October.

That is not a surprise. Google already charges such surcharges of two to seven percent for advertising bookings in Austria, France, India, Italy, Spain, Turkey and the United Kingdom, which impose similar taxes. Due to its market power in online advertising, Google does not have to fear any significant loss of revenue. Just as Meta suffers no disadvantage from the blocking of hyperlinks to third-party news sites, but is likely to benefit from users spending more time on Facebook and Instagram. A ray of hope: The proportion of misinformation posts is said to have halved in Canadian Facebook groups.

Another tax of five per cent will come into force in September: the streaming tax is intended to subsidize cable TV, commercial radio and music in Canada. This measure also provided the Conservatives with ammunition for the election campaign against the Liberal government.

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