Blogs

  • 18 May 2018 by DigiBC

    Are you concerned about the GDPR which comes into effect on May 25, 2018?

    What is the GDPR?
    The General Data Protection Regulation introduces new data protection obligations for businesses while providing increased data protection rights for data subjects. The GDPR also significantly increases fines for non-compliance. 
     

    How does it affect our members?
    The newly approved GDPR fundamentally changes the way organizations collecting data in the EU need to manage their people, policies, processes, and technologies. It is vital for organizations to understand how this new legislation will impact them and ensure they are equipped to properly manage privacy and data protection, and have the technical ability to do so.


    How can DigiBC help?
    DigiBC members are invited to participate in a phone call with a leading European interactive digital media lawyer assisting with GDPR compliance. This half hour Q&A will be scheduled for the end of May. Please contact brenda@digibc.org if you would like to participate or know more.
     

  • 16 May 2018 by DigiBC

    DigiBC's Executive Director, Brenda Bailey, participated in the Canadian creative industry trade mission to China last month. It was led by the Honorable Melanie Joly, Minister of Canadian Heritage, and took place from April 9-13. More than 50 cultural companies participated and those from the creative tech sector included Relic Entertainment, Go2 Productions, IUGO Entertainment, Hyper Hippo Games, G-Pak Technology Inc., and Studio X Labs. The opportunity to attend came about through Creative BC and coordination was provided by our truly excellent provincial and federal trade delegates.

    The mission included a broad range of creatives. For example, Corus Entertainment, Kids Can Press, Minority Media, National Ballet of Canada, TIFF, Cirque du Soleil, Alberta Music and Entertainment One attended. That animation, video games, and visual effects are now included in the definition of culture indicates a step forward on how the sectors are viewed by our federal government. The delegates spent two days in Shanghai and three in Beijing.  It was clearly apparent that our Chinese cultural counterparts are seeking new opportunities and are eager to build strong relationships with their Canadian counterparts. Currently, there are more than 20 million people working in the cultural industry in China.

     


    The following information highlights the opportunities opening up in China and was presented in a publication created for the mission titled, “A Snapshot of China’s Creative Industries”.

     

    Video Games / Digital Interactive Entertainment
    Between 2009 and 2016 the number of gamers in China has increased fivefold from 115 million in 2009 to 566 million in 2016. China now accounts for 25% of the global market, having surpassed the United States to become the biggest video game market in the world. Tencent and NetEase hold a majority of the market. In 2016, 49.5% of their gaining market share was mobile.

    The PC gaming landscape in China is complex. In 2016 Chinese users were the third largest group of users on the Steam platform, and numbers have increased rapidly in the past year from 10 million in May 2016 to 16 million in March 2017. Of the top 20 games, by sales, in the Steam China store as of March 2017, six were developed by Canadian game studios! However, games platforms not registered in China may be confronted with regulatory challenges from the government. The uncertainty created by the great firewall and state censorship pose risks to foreign platforms not registered in China which could be blocked any time.

     

    Animation and VFX
    China has 50,000 screens and that number is growing at a rate of 27 new screens per day. Animated productions such as
    'Journey to the West' and 'The Monkey King' have generated box office sales of more than one billion (RMP). Of the top 10 films in 2016, four were entirely foreign productions, five were foreign culture co-productions classed as domestic, and only one was entirely domestic. There is strong interest in co-production in this sector.

    Relative to Hollywood blockbusters, post-production budgets for Chinese films are low. When relative to Canada the Chinese VFX and animation sector is still at an early stage of development, the domestic industry is dominated by a small number of production companies that provide VFX services. To improve these services, Chinese companies are increasingly seeking out foreign expertise. Canada’s reputation as a world leader in VFX and the success of a number of existing high-quality collaborations between Chinese and Canadian companies has created a strong desire for further collaboration.

     

     

    Chinese Market Access Peer Group

    DigiBC is forming a peer group for studios who are interested in exploring the risks and benefits of accessing the Chinese market. We plan to bring together both experienced and companies new to this market to have frank discussions, share learning on market access, and expert speakers. Please contact brenda@digibc.org should you have interest in becoming involved in this initiative.

     

     

     Jason Dowdeswell (Relic Entertainment), Bentley Brar (G-Pak Technology Inc.), Paul Ruskay (Studio X Labs), Sam Fisher (Hyper Hippo), Prem Gill (Creative BC), Gemma Scott (Go2 Productions), Brenda Bailey (DigiBC), Adrian Scott (Go2 Productions)

     

  • 15 May 2018 by DigiBC

    TTT Studios is a premium software company based in Vancouver, BC. They design, develop, and deliver world-class software, complex websites, and mobile apps for startups and enterprise companies. It was founded in July 2011 by Chris Hobbs, David Hobbs, and Josephine Wong and since then they have grown to become a powerhouse in the Vancouver tech community. TTT are known to develop beautiful and effective software that combines a design-first philosophy with deep expertise in sophisticated communications, security, and web services integration. Since its inception, they have garnered a client list from over 20 different industries and have completed 150+ successful projects. Currently, they are working on a robust mobile app for FortisBC, an interactive app for the Logitech Revols earphones, and revamping the MortgageBOSS platform for The Mortgage Alliance Company.

     

     

    Recognized by the Canadian Centre for Diversity and Inclusion, TTT takes pride in cultivating a culture of openness and passion. This is evident in their belief that employees are the core of the company and every single person contributes to its overall success. They also empower the community by getting involved with local and international events as speakers, educators, and sponsors. In the office there are three faces you will see on a regular basis who help keep things in line… three puppy faces, that is! Roxy is the fuzzy office mascot who is highly specialized in begging for food, Mojo (Head of Security) is a sassy Pomeranian who takes his job very seriously, and Diamond (Head of PR) can often be found sleeping on the job.

    The staff describe themselves as people who are approachable, skilled, artistic, and even a bit nerdy while supporting each other with positivity and understanding. If you like the sounds of that then make sure to check out their website as they are currently hiring for a number of open positions. https://ttt.studio/careers/

     


     

  • 11 May 2018 by DigiBC

    Do you sell online to the USA?

    The internet has changed how business is conducted, especially in a cross-border context. The ease and relatively inexpensive access to the internet, the emergence of social media sites such as YouTube, and the proliferation of company websites that operate as virtual storefronts, has created business opportunities where none existed before. Now any Canadian business with a computer and a good idea can sell goods or services to US customers with little or no physical presence in the US. This leads to a fascinating question: how should governments tax e-commerce?  In the US, there are two vastly different approaches to this issue that lead to drastically different results.
     

    How is income from e-commerce taxed at the US federal income tax level?

    At the federal income tax level, the presence of “old school” rules requiring a Canadian business to have a physical presence in the US before it is subject to federal income tax results in many Canadian e-commerce businesses avoiding US federal income tax liabilities. If the Canadian business is not deemed to have a US trade or business, then the issue of what profits it might have from US customers becomes irrelevant – those profits will generally not be subject to US federal income tax.

     

    WHAT IS A US TRADE OR BUSINESS?

    The rules for determining whether a Canadian company has a US trade or business are largely based in US domestic law but are augmented by the Canada-US Income Tax Treaty (the “Treaty”). The Treaty slightly alters some of the language and rules used in the analysis, thus providing slightly more clarity, but otherwise does not fundamentally alter the underlying concept.

    Typically, a US trade or business exists if activities of a Canadian business in the US are considerable, continuous, and regular. Furthermore, the activities conducted by a Canadian business within the US must also generally be active (as opposed to passive investment activities), substantial, and closely related to deriving business profit. As such, back office and logistic functions of a business, such as clerical activities, collection-related activities, and the mere storing of inventory in the US will not by themselves result in a Canadian business being engaged in a US trade or business.

    In addition to the above requirements that are derived from US domestic tax law, the Treaty generally requires one of two additional requirements to be met before the US will consider a Canadian business to be operating a US trade or business: (1) that the Canadian business has a fixed place of business within the US (such as an office or another place of management); or (2) have a dependent agent in the US who has the power to habitually exercise the right to conclude contracts in the name of the Canadian business with US customers.

    As noted above, Canadian based e-commerce businesses generally do not trigger either of these two requirements as: (1) operating a website that is accessible from the US generally will not constitute a fixed place of business within the US; and (2) taking orders through such website from US customers will generally not be considered as concluding contracts within the US.

     

    How is income from e-commerce taxed at the state income tax level?

    In direct contrast with the federal income tax rules, at the state income tax level, most states have done away with physical presence based rules and have adopted rules to tax businesses based on whether such businesses have a substantial “economic nexus” with the state. Economic nexus is a facts and circumstances test and is often based on such factors as the dollar amount and number of transactions conducted by the business with customers located in the state. This focus on the amount of sales made to customers within a state for purposes of taxing out of state business has gone a step further in certain states such as California, Colorado, Ohio, and Michigan, as these states now have bright line sales thresholds for determining nexus (e.g., Ohio, California, and Colorado have a $500,000 threshold, Michigan has a $350,000 threshold).

    Once a state has determined that an out of state business has economic nexus within the state, the business will typically have to apportion a percentage of its profits to be taxed in the state based on an apportionment formula that varies by state. Many states, although not all, have gone to a “single sales factor” apportionment method whereby the apportionment percentage is based on the total dollar amount of sales to customers in the state divided by the business’ worldwide sales.

    For example, if we assume a Canadian e-commerce business has $1,000,000 of sales to California, and that its total worldwide sales is $10,000,000, 10% of the total net income of the business will be subject to the California state income tax.

     

    How is income from e-commerce taxed at the state sales tax level?

    Pursuant to the US Supreme Court case, Quill Corp. v. North Dakota (“Quill”), states have historically only been able to tax out of state businesses for sales tax purposes if the out of state business had a physical presence in the state.  The rule laid down by Quill had the unintended consequences of heavily favoring e-commerce businesses over local brick and mortar retailers.  In the last several years, numerous states have passed legislation adopting economic nexus and even bright-line tests in order to subject sales from out of state businesses to state sales taxes. Currently, the State of South Dakota is involved in a case before the US Supreme Court that could likely abolish the need for physical presence based taxation for sales tax purposes.   If the US Supreme Court rules in favor of South Dakota and abolishes the physical presence standard, Canadian e-commerce businesses with significant sales to US customers could be faced with state sales tax exposures in addition to state income tax exposures.

     

    Summary  

    Unbeknownst to many Canadian e-commerce businesses, it is entirely possible that such businesses are subject to US state income taxation even though they are not subject to US federal income taxation. Furthermore, with there being a strong likelihood that Quill will be overturned later this year, Canadian e-commerce businesses will likely also have state sales tax exposures to be concerned with.


    If you have any questions or would like to discuss any potential US tax issues that may affect your business, please contact
    Eric Trumbull of our US Tax Group.


    Written
    by Eric Trumbull, Juris Doctor

     

  • 11 May 2018 by DigiBC

    We had a great time in Victoria last month celebrating #CreativeIndustriesWeek! An amazing job was done by Creative BC making this event happen and working continuously to promote and grow the creative sector.


    The event kicked off for DigiBC with an evening reception held at The Union Club,
    co-hostedbyR2D2thanks to Industrial Light and Magic, where members of government were given the opportunity to test out Finger Food’s Cirque du Soleil VR experience. Also on the program for the night was a screening of Ana de Lara’s Good Girls Don’t, winner of the 2017 MPPIA Short Film Award, and a soulful performance by emerging artist, Maya Rae.


    The following day saw DigiBC join other members from the creative tech industry, such as MPA Canada, Fox Studios, and Warner Studios, for the BC Creative Industries Showcase in the Reception Hall of Honour at the BC Parliament Building. Codename Entertainment represented DigiBC with a demo of their game, Idle Champions of the Forgotten Realms. Deadpool was on hand (everyone’s favourite merc with a mouth), and R2D2 continued to capture the crowd's attention, including The Honourable John Horgan as he made his way through the group to address the room to put forth the official proclamation of ‘Creative Industries Week’ from April 23-30, 2018. Prem Gill, CEO of Creative BC, emceed the program which saw short speeches by The Honourable Bruce Ralston, Minister of Jobs, Trade and Technology, Joan Miller, Vancouver Island North Film Commission and President of the Regional Film Commissions Association, among others.


    Job growth and career pathways were the prominent themes of the event which was highlighted by the attendance of high school students who were given an inside look at some of the exciting, creative careers available to them right here in their home province. With BC’s digital media companies employing 16,500 people and contributing $2.3 billion to the economy each year they are sure to find something to suit and help keep BC’s creative industry thriving.

    We’d like to give a big shout out to Finger Food Studios and Codename Entertainment for representing DigiBC and helping our political partners better understand our sector.