Canada Deputy Prime Minister Chrystia Freeland defended the recently enacted digital services tax (DST) amidst the pushback from business groups and threats of US reprisals.
The Digital Services Tax Act (DSTA) entered into force on June 28, 2024, pursuant to an Order in Council (OIC) of that date.
Understanding the Digital Services Tax
Briefly, the digital services tax (DST) is a 3% tax that would apply to large businesses, both foreign and domestic, that meet both of two revenue thresholds: global revenue of €750 million and more than than $20 million of Canadian in-scope revenue in the calendar year.
In-scope revenue is defined to come from services offered via online marketplace, online advertising, and social media, as well as user data.
According to the DSTA, a $20 million annual deduction is available to be allocated proportionately among members of a consolidated group.
DST applies retroactively: while the first year of enforcement is 2024, the initial payment will cover revenue generated from January 1, 2022, through the end of 2024. The first payment and the return for the period 2022-2024 are due by June 30, 2025.
As per the forecast in the 2024 federal budget, this will bring in C$ 5.9 billion over five years.
Deputy PM Freeland Stands by Canada’s Digital Tax
Speaking publicly about it for the first time since the rollout, Deputy Prime Minister Freeland said Canada was following the lead of other G7 nations such as Britain, France and Italy.
Ottawa put forward the tax in 2019, but held off on implementing it to await the completion of global treaty discussions on multinational taxation.
Those negotiations dragged on without a deal, and "it's simply not reasonable, not fair for Canada to indefinitely put our own measures on hold," Freeland said.
"Canada's preference is and always has been a multilateral solution on the digital service tax," she added, noting that bilateral talks with Washington continue.
Last month, the US Computer and Communications Industry Association (CCIA), representing major tech firms such as Amazon, Apple, and Uber, alongside 10 other trade associations, urged President Joe Biden to challenge the "burdensome and discriminatory" tax under the US-Mexico-Canada Agreement (USMCA).
In their letter, they cautioned that the tax would disproportionately impact US companies and could have a "chilling effect" towards US investment in Canada.
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