Canada pushes taxes on Big Tech firms, America unhappy

Canada will press ahead with the introduction of a digital services tax on large technology companies, the federal budget showed on Tuesday. And because these firms are mostly American, Washington thinks the plan is unfair.

Ottawa is seeking to address the challenge of taxing digital giants like Google parent Alphabet and that can book their profits in low-tax countries

The hope is that the new 3% digital services tax (DST) on revenues from online advertising and marketplaces, plus social media and sales of user data, would raise C$5.9 billion ($4.3 billion) over the five years starting fiscal 2024/25.

Canada had actually held off for two years to allow for the conclusion of talks on a global treaty on taxing multinationals. But this deal, the Organization for Economic Cooperation and Development/G20’s Pillar One (PDF), still needs to be approved by many different legislatures, and the negotiations are dragging.

This is why Canada has decided to implement a DST and frame it as a backstop to the global agreement.

Presenting the annual budget, the government said it wanted to ensure “global and digital corporations pay their fair share” because right now, “the global corporate tax race to the bottom undermines Canada’s ability to make investments at home that help restore fairness for every generation.”

“In view of consecutive delays internationally in implementing the multilateral treaty, Canada cannot afford to wait before taking action. The government is moving ahead with its longstanding plan to enact a Digital Services Tax,” added the finance ministry.

Only the biggest tech companies doing business in Canada would pay the tax. But the thing is that these very large companies happen to come from one particular country – the United States. Naturally, US President Joe Biden’s administration says the DST would be unfair to American businesses.

Already in February 2022, the US Chamber of Commerce said that the imposition of the proposed tax in Canada would discriminate against US companies and contravene Canada’s obligations under both the Canada-US-Mexico Agreement and the World Trade Organization.

“The real-world costs would be substantial: it would increase the risk of unmitigated double taxation for U.S. companies, undermine predictability and stability, impose undue administrative complexity on account of its retroactive application, and raise new hurdles for cross-border trade and investment to the detriment of workers and businesses across North America,” the Chamber also said in September 2023.

Other countries, including the United Kingdom, Italy, India, France, Spain, Turkey, and Austria, are already charging a similar digital services tax.

However, there are worries that tensions between the US and Canada, in particular, could turn into a trade war, says Daniel Bunn, the president and CEO of the Tax Foundation, a nonpartisan tax policy nonprofit – also because the DST legislation could apply retroactively to revenue from January 2022.

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