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Canada’s Digital Services Tax’s time has finally come, marking a critical step in tax fairness

18 janvier 2024 Par Katrina Miller

Photo: James Yarema

Image of Google and Amazon logos

This article originally ran in the Toronto Star.

Jan. 1 is due to mark a significant change in taxing policy in Canada. If the federal government keeps its promise to implement its long awaited Digital Services Tax, corporations like Google, Amazon, and Netflix will have to pay 3 per cent on a portion of revenue generated in Canada, no matter where they are headquartered. It is a critical update to our tax policy, reflecting the globalization and digitization of our economy.

Not everyone is happy about it though. The OECD has spent the last two years attempting to finalize an international approach to digital tax policy, one that obligates its signatories to forgo sovereign tax tools like Canada’s DST. However, the OECD’s proposal has been both weakened and stalled, offering Canada much less in terms of recovering fair revenue from the world’s undertaxed digital giants.

Earlier this year, the OECD announced that implementation of Pillar One of its Inclusive Framework on Base Erosion and Profit Shifting (BEPs), which covers taxation of digital giants, is delayed once again. Now many economic experts warn that there is no clear path to its completion. Even with a heavily weakened version of the rules on the table, the U.S. continues to be a major holdout and the deal is defunct without them.

Under the OECD’s most recent proposal, only corporations with $20 billion in global revenue and profit rate of over 10 per cent are covered, around 100 companies in total. Companies like Uber and eBay don’t make the cut. Those tech giants that are included only get taxed on a small portion of their profit. Our analysis shows that Amazon would owe nothing to Canada under the OECD’s watered down rules, based on 2020 financial reporting. Google and Facebook would pay 60 to 80 per cent less than they will under Canada’s DST. 

Canada proposed its DST in 2020 to make good on a 2019 election promise and backstop the OECD process. Following the OECD’s original proposed revenue threshold of €750 million and the structure of DSTs in other countries, Canada’s DST covers many more companies than the current Pillar One proposal. According to the Parliamentary Budget Officer it is expected to raise over a billion dollars annually. 

Canada is smart to move forward with its own DST on Jan. 1, and not just because it is a better revenue deal for the country. Pillar One continues to face roadblocks and its future remains uncertain. 

Tax justice advocates in the Global South oppose the newest OECD proposal because it seeks to eliminate sovereign DST tax tools for too little in exchange. Revenue estimates show these countries could lose out on billions of dollars. Pillar One requires U.S. approval because it houses the greatest percentage of corporations covered under the rules. The U.S. also sees itself as one of the biggest losers if Pillar One moves forward. It’s hard to imagine a scenario where the U.S. Senate provides the two-thirds majority support needed to ratify sign-on to Pillar One, before or after the U.S. 2024 election.

It’s possible that Canada’s decision to move forward on its own DST may provide needed incentive to push the U.S. toward supporting a deal at the OECD to avoid other countries from doing the same. It would still require an emboldened President Biden with a sizable Senate majority at the very least.

The U.K., France and a handful of other countries involved in the Pillar One negotiations have had DSTs on the books for years. Canada is well justified in playing catch-up and recovering tax revenue it needs right now to support critical investments in health care, housing and other measures that make life more affordable and more livable for Canadians. Canada has held off on implementing its DST for years in hopes that the OECD process would bare fruit, but now we can wait no longer.

Katrina Miller is executive Director of Canadians for Tax Fairness.

Photo: James Yarema