'No negotiation about a tax exemption,' Joly says of Netflix pledge to build production facility

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Netflix Inc.'s commitment to build a production facility in Canada involved no quid pro quo on the part of the Canadian government to make the U.S.-based streaming giant exempt from taxes or potential regulations, Heritage Minister Mélanie Joly says.

"There was no negotiation about a tax exemption. That was not part of our discussions," Ms. Joly said Thursday during an event hosted by the Empire Club of Canada in Toronto. "The production house will be paying its income taxes in Canada. There was no discussion of whether we should or not, legislate digital platform entities. This was not part of the conversation."

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Ms. Joly has found herself on the defensive since she announced her vision for the evolution of Canadian cultural policy two weeks ago. A large part of the criticism has focused on the fact that Netflix is not required to pay sales taxes on the hundreds of millions of dollars in revenue it draws from Canadian customers each year; and that it is not required to dedicate a portion of its revenues toward the creation of Canadian content the way that domestic broadcasters are.

Her comments echo a public relations initiative by Netflix this week, which sought to "set the record straight" on the deal. It repeated previous comments that a price hike announced in August had nothing to do with the deal; that the commitment to spend $500-million on productions in Canada over five years was over and above its existing plans; and that it involved no "deals about taxes."

The issue has also provided ammunition to the federal NDP, which said this week that it would impose sales taxes on foreign online companies, including Netflix, in order to "level the playing field."

Determining how to regulate online entities is a legislative issue, Ms. Joly said on Thursday, reiterating the government's intention to review the Broadcasting Act and the Telecommunications Act. Such a review could reshape the legislation, which includes the mandate and regulatory powers of the Canadian Radio-television and Telecommunications Commission (CRTC).

"Our legislation right now doesn't deal with the reality of the internet," Ms. Joly told reporters after the event. "That's why we need to work on the legislation. … Over the next weeks, I'll be able to give you more information."

Also on Thursday, the CRTC launched a consultation asking how Canadians will access audio and video content in the future. Ms. Joly has asked the CRTC to submit a report on "future distribution models for Canadian programming, as well as its continued creation, production and distribution" by next June. As part of the process, the CRTC is asking how programming distribution models could "ensure a vibrant domestic market," leading to renewed questions about whether internet service providers or other digital players could be required to contribute to the production of Canadian content in the future.

"I've said it in June, the Prime Minister also said in June, there will be no ISP tax," she said. "For the rest, the CRTC will be studying this issue … and we're waiting for their report."