Canada To Implement Digital Services Tax This Year

Canada has seemingly lost patience with the ongoing delay to implement an international agreement on a digital services tax, and is thus pressing ahead with its own legislation.

Reuters reported that the Canadian federal budget showed on Tuesday that Canada will press ahead with the introduction of a digital services tax on large tech companies, which would raise C$5.9 billion ($4.3 billion) over the five years starting fiscal 2024/25.

Since 2020 Canada had been mulling a digital services tax (slated for 2022), which it said at the time would remain in place until other nations came up with a co-ordinated approach on taxation.

Digital services tax

Tech companies such as Amazon, Apple and Google have long been criticised by lawmakers for their tax practices that sees them reducing their tax bills by booking profits in low-tax countries (such as Ireland or Luxembourg) regardless of the location of the end customer.

The tax issue became a political talking point in the past five years, with multiple nations, and even the European Union, mulling their own legislation for a digital services tax.

In June 2021 tax activists had levelled a serious allegation against what they called the ‘Silicon Six’, namely Facebook, Apple, Amazon, Netflix, Google and Microsoft.

The Fair Tax Foundation had alleged it had undertaken a forensic analysis of the tax conduct of the Silicon Six, and alleged the firms had paid $100 billion less in tax than they had claimed.

The issue of a digital services tax has long been opposed by the United States, which argues it would unfairly single out American firms.

Former US President Trump for example investigated the French digital tax policy and threatened to impose US taxes on French wine and cheese.

OECD negotiations

France’s dispute with the US was postponed when France offered to suspend its digital tax on tech companies’ income in France for a time, while the OECD (Organisation for Economic Cooperation and Development) negotiated new rules for the cross-border taxation of big digital companies.

In October 2021 the OECD reached an agreement on a global corporation tax rate.

That agreement saw 136 countries and jurisdictions, representing more than 90 percent of global GDP, agree a global minimum corporate tax rate of 15 percent.

This would be a major reform of the international tax system and would ensure that Multinational Enterprises (MNEs) are subject to a minimum 15 percent tax rate from 2023, the OECD said at the time.

That OECD agreement had realised the deal that had been reached by the G7 finance ministers at a meeting in London in 2021, ahead of the G7 summit in Cornwall in June 2021.

Officials had hoped to sign off the landmark agreement by mid 2022, but in May 2022 Mathias Cormann, the OECD secretary-general, warned that progress on ironing out technical details on a landmark digital tax deal to ensure tech giants paid their fair share of tax on local sales, was going less quickly than planned.

Cormann said at the time that there were “difficult discussions under way”, and that instead of being implemented next year (2023), it would not come into force until 2024 at the earliest.

Canadian action

Now Reuters has reported that Canada is not willing to wait any longer on the dragging negotiations.

“In view of consecutive delays internationally in implementing the multilateral treaty,Canada cannot afford to wait before taking action,” the finance ministry reportedly said in its annual budget.

“The government is moving ahead with its longstanding plan to enact a Digital Services Tax,” it added.

The tax would begin to apply for the 2024 calendar year, with the first year covering taxable revenues earned since 1 Jan 2022.