The Canadian government will postpone and possibly scrap its digital services tax on Big Tech after signing a global pact with 135 other countries to overhaul the way large multinational companies are taxed.
The agreement, reached by members of the Organisation for Economic Co-operation and Development (OECD) on Oct. 8, imposes a global minimum corporate tax of 15 percent on big multinational companies starting in 2023.
The deal requires the largest and most profitable multinational enterprises—those with global sales of about $28.7 billion a year and over 10 percent profitability—to pay a “fair share of tax” in countries where they operate, regardless of whether they have a physical presence there.
But the condition is that participating countries—including Canada—are required to “remove all Digital Services Taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future,” according to a statement by OECD on Oct. 8.
This means Canada’s Digital Services Tax (DST) which is slated to commence on Jan. 1, 2022, will be affected, as the pact forbids members from imposing such taxes till the end of 2023, or until the new deal comes into force.
Finance Minister Chrystia Freeland said that the federal government would postpone the implementation of the DST, but would still proceed to finalize the legislation of the tax, in keeping with Budget 2021.
“The DST would be imposed as of January 1, 2024, but only if the treaty implementing the tax regime under this global agreement has not come into force,” Freeland said in a statement on Oct. 8.
She stressed should the Canadian tax be implemented eventually, Big Tech would have to retroactively pay their due.
“In that event, the DST would be payable as of 2024 in respect of revenues earned as of January 1, 2022,” she said.
The DST was designed to tax business models that rely on digital technology such as social media, search engines and intermediation platforms that engage with their users. Unlike traditional businesses, these businesses earn revenues through their users’ participation, advertisement, content and data, and are not limited to any physical locations.