US kicks as Canada introduces digital services tax bill
Subsequent to the country’s planned digital services tax, Canada, on Tuesday, December 14, introduced draft legislation for its implement. Inserted in the draft however, is a built-in delay and contingency clause deferring this to the implementation of the Organisation for Economic Cooperation and Development (OECD)’s multilateral agreement. Should the OECD agreement fail to be timely implemented however, Canada’s digital services tax would be imposed in 2024 with retroactive application to 2022 according to the draft.
In a sharp response, US Trade Representative spokesperson in a statement was critical of Canada’s advancing of the proposed bill, stating that the retroactive application would create “immediate consequences for U.S. companies.” Noting Canada’s participation in the October 8 OECD agreement, the statement adds that if Canada adopts the tax, the US Trade Representative “would examine all options, including under our trade agreements and domestic statutes.”
It should be recalled that in October, 136 OECD countries and jurisdictions representing more than 90% of global GDP agreed to a major reform of the international tax system which ensured that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023. The landmark deal will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.
Meanwhile, Canada’s finance ministry have stated in the economic and fiscal update released the same day as the draft legislation that the government’s “preference has always been a multilateral agreement.” The government’s update adds that it is their “sincere hope that the timely implementation of the new international system will make Canada’s digital services tax unnecessary.”
To allow time for implementation of the OECD agreement, Canada’s digital services tax would not be imposed until January 1, 2024 – and then only if Pillar 1 the OECD agreement has not yet come into force.
However, if the implementation of Pillar 1 is delayed (or abandoned), the digital services tax would apply retroactively to revenues earned as of January 1, 2022, once it becomes due in 2024.
Under the OECD agreement, Pillar 1, which would reallocate a portion of taxing rights between nations and replace unilateral digital services taxes, is intended to be effective in 2023. However, it is an open question how realistic that timeline is – given that implementation will require adoption of a multilateral convention by numerous countries around the world.
Canada’s digital services tax, if adopted, would apply at a 3% rate on revenue earned by large businesses from certain digital services that rely on Canadian user data, content, or engagement.
The tax would apply to business groups with both total consolidated revenues of at least EUR 750 million (approximately USD 844 million) and Canadian in-scope revenues in excess of CAD 20 million (USD 15.5 million). In-scope revenue would include online marketplace services revenue, online advertising services revenue, social media services revenue, and user data revenue.
Canada’s Department of Finance is accepting comments on the proposed legislation until February 22, 2022.
RECOMMENDED ARTICLES
Comment
No comments found.