The federal government has passed a controversial digital services tax that would generate billions of dollars but jeopardize trade relations with other countries by charging the money that foreign companies make in Canada. The tax was suggested by the Liberal administration in its 2019 platform. In order to negotiate a compromise with other OECD countries over the taxes of multinational digital enterprises, it later decided to postpone the measure’s implementation until the end of 2023. The federal government issued an order in council on June 28 to apply the digital services tax (DST), which gained royal assent on June 20, as a result of the protracted negotiations on an international arrangement that extended past that date.
In Milton, Ontario, on Thursday, Deputy Prime Minister and Finance Minister Chrystia Freeland stated to reporters that “Canada’s preference is, and has always been, a multilateral solution.” “It’s simply not reasonable, not fair, for Canada to indefinitely put our own measures on hold,” she stated. “A number of other countries have a DST in place right now, and they have had a DST in place for a number of years with no retaliation.” According to Freeland, Canada ought to be allowed to impose a DST if friends like the United States, Spain, Italy, and France may do so without the United States retaliating. “We have been and continue to work really hard to achieve a multilateral solution,” she stated. “I am confident that a win-win outcome for Canada and the U.S. is absolutely possible.”
Digital firms that have global annual income of at least $1.1 billion will see annual revenues in Canada over $20 million taxed at a rate of three percent. The tax’s first year makes up of money received since January 1, 2022. Over a five-year period, the Parliamentary Budget Office projected last year that the tax would generate over $7 billion in revenue. The 2024 budget forecast revenues at $5.9 billion over five years, starting in 2024-25. Because they are not based in many of the nations in which they do business, multinational digital corporations like Meta, Alphabet, Facebook, and Amazon are able to evade paying certain taxes. The digital services tax is viewed by the federal government as a means of modernizing the tax code and recouping money earned in Canada by foreign companies. Katherine Cuplinskas, the press secretary for Freeland, stated, “Canada strongly supports international efforts to ensure that all corporations, including the world’s largest corporations, pay their fair share and to end the corporate tax race to the bottom.”
Concerns regarding potential negative effects have been raised by the Liberal government’s determination to apply the tax before an international agreement could be achieved with other OECD countries. U.S. Ambassador to Canada David Cohen issued a media statement Thursday calling the tax “discriminatory.” “The United States Trade Representative has noted its concern with Canada’s digital services tax and is assessing, and is open to using, all available tools that could result in meaningful progress toward addressing unilateral, discriminatory digital services taxes,” Cohen said in the statement.
An Amazon spokesperson said on Thursday that the company is disappointed by the decision and called it “a discriminatory tax that will harm Canadian consumers.” As soon as the legislation enabling the tax became law, the U.S. Chamber of Commerce and the American Chamber of Commerce in Canada issued a statement strongly objecting to the measure, which they say will raise prices for everyone. They said a digital services tax would disproportionately hit U.S. companies, undermine digital exports to Canada, and violate Canada’s obligations under the U.S.-Canada-Mexico free trade agreement and the World Trade Organization. The Canadian Chamber of Commerce told Thursday that “a retroactive discriminatory digital services tax” will harm Canada’s relationship with the U.S. and raise the cost of living in Canada. “The government should reverse its unilateral decision that is out of step with our allies and instead work with our trading partners on an international solution that would better serve Canadians,” Robin Guy, the chamber’s vice president of government relations, said. On June 28, Ontario Finance Minister Peter Bethlenfalvy wrote to Freeland, asking that the tax’s implementation be paused.
“However, we must do this carefully and not in a way that will impose unnecessary taxes on people and businesses or risk isolating Canada from the U.S. marketplace.” “Disappointed” with the decision to levy the tax before an international agreement could be achieved, Bethlenfalvy’s office said on Thursday. Big tech companies like Apple, Uber, and Amazon are represented by the U.S. Computer and Communications Industry Association, which wrote to U.S. President Joe Biden last month requesting that his administration start formal dispute settlement procedures under the USMCA (United States, Mexico, and Canada Agreement). According to the group, the action is required because a tax on digital services might result in thousands of full-time job losses in the United States and cost American businesses up to $2.3 billion yearly.
