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Surely this is a case book example of the free market in action.

How is something caused by government intervention an example of the free market in action?

The parts that are still free to do so, like nodes on the Internet, route around them. (Or, if you prefer, "avoid them like the plague.")

One can argue that tax jurisdictions compete with each other in a market. Which is a good thing, as it helps put an upper bound on how aggressive a jurisdiction can get before capital starts fleeing.

But of course this picture is missing one of the key mechanisms of a truly free market -- there's no market pricing of the market participants themselves. You can't buy out a government that's acting foolishly.

It's a refundable credit, meaning that the government will reimburse the company for VFX work above and beyond its tax liabilities. How is this "tax jurisdictions competing" and not a direct government subsidy? http://www.bcfm.ca/faq/#pstc4

I think that's a distinction without a difference.

Whether the government taxes you less, pays you directly, or puts tariffs on your foreign competitors, it all amounts to a subsidy in the end.

(And I don't disagree that it's a foolish idea.)

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