Big Tech tax will bring in $3.4 billion

The Liberal government will target Big Tech with a $3.4-billion digital services tax, despite some experts warning that such a move carries the risk of retaliatory tariffs from the United States.

At the same time, the government will invest in broadband connectivity, digital adoption by small businesses, and strategies to promote such sectors as quantum technologies and genomics.

The federal budget released Monday confirmed the government will go ahead with the tax, which is aimed at large companies that operate online marketplaces, social media platforms and earn revenue from online advertising. That category would include services like Amazon, Google and Facebook, as well as Uber and Airbnb, if they also meet minimum revenue criteria.

The budget document said the tax is “intended to ensure that revenue earned by large businesses — foreign or domestic — from engagement with online users in Canada, including through the collection, processing and monetizing of data and content contributions from those users, is subject to Canadian tax.”

The three-per-cent tax will come into effect on Jan. 1, 2022 and will apply to large businesses with gross revenues of more than approximately $1.13 billion, and $20 million in “in-scope revenue associated with Canadian users.” The government expects to collect $3.4 billion over five years.

The tax will be replaced by an international version once the OECD establishes consensus on a multilateral digital services tax. The budget said Canada is “optimistic” about that process, which aims to reach an agreement by mid2021. “However, multilateral discussions have been going on since 2013. That is why, while Canada’s hope and preference is for a multilateral solution this summer, whether or not a deal is reached, Canada intends to take action,” the document said.

The U.S. said three weeks ago it’s considering implementing tariffs on six countries that have adopted unilateral digital service taxes instead of waiting for the OECD process.

The budget also outlined spending on promoting a number of digital and tech initiatives, including strategies to strengthen emerging tech sectors and help to move small businesses online.

It also adds another $988 million to the government’s fund for building out broadband internet connections to rural and remote regions of the country.

Fewer than half of Canadians living in rural areas currently have access to 50 Mbps Internet service, the minimum the CRTC says should be available to all. The government has promised to extend that availability to 98 per cent of Canadians by 2026 and to 100 per cent by 2030, but advocates have called for those goals to be sped up as the COVID-19 pandemic hit and Canadians’ work, school and social lives had to move online.

The additional money will bring the total funding for the Universal Broadband Fund, which was launched last fall, to $2.75 billion.