Canada agrees to delay its tax on Big Tech

OECD sets global rate of 15 per cent

Canada will delay, and potentially abandon, a digital services tax on Big Tech after the Organisation for Economic Co-operation and Development reached a deal on a multilateral tax approach.

The agreement by 136 countries, reached Friday, sets a global minimum corporate tax rate of 15 per cent for multinational companies. It will also require the largest and most profitable global companies — those with global sales above about $28.7 billion a year and more than 10 per cent profitability — to pay some taxes in countries where they operate, even if they don’t have a physical presence there.

But in exchange, OECD countries will have to remove or hold off on implementing their own digital services taxes. That includes Canada’s promised tax on tech giants, targeted at large companies that operate online marketplaces, social media platforms and earn revenue from online advertising. Companies like Amazon, Google and Facebook, as well as Uber and Airbnb, if they also meet minimum revenue criteria, would be covered by the tax. The government estimates it would bring in $3.4 billion over five years.

The office of Finance Minister Chrystia Freeland said the Liberal government would delay the implementation of the digital services tax from Jan. 1, 2022 to Jan. 1, 2024. The Canadian DST would only come into effect if the OECD agreement hasn’t come into force by 2024, but if the Canadian tax is implemented, it would be retroactive.

“In that event, the DST would be payable as of 2024 in respect of revenues earned as of Jan. 1, 2022. It is our sincere hope that the timely implementation of the new international system will make this unnecessary,” Freeland said in a statement Friday.

The delay is due to a section of the OECD agreement that requires “all parties 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.” Countries can’t impose any new digital services taxes until at least the end of 2023, or until the new agreement is in force.

Whether the tax will affect other initiatives the Liberal government has promised to implement to take on Big Tech is less clear. The Liberals have pledged to introduce, within 100 days of Parliament’s return, both legislation aimed at forcing companies like Netflix to pay into the Canadian content system, and legislation following the Australian model that would see Google and Facebook compensate news outlets for their content.

Finance Canada did not respond by deadline when asked whether those would count as “other relevant measures” under the OECD agreement. An OECD spokesperson did not respond when asked for more information about what would be considered a relevant similar measure.

Facebook and Google also didn’t answer when asked whether they would consider the government’s promised measures on Cancon and news to fall into that category.

Facebook sent a general statement about the OECD deal from its vice-president of global affairs, Nick Clegg, who said the company is “pleased to see an emerging international consensus.” Google pointed to a tweet from its vice-president of policy and government affairs, Karan Bhatia, who called the OECD agreement “an important step forward” and said “we’re hopeful the momentum continues.”

The tech giants who would be affected by a Canadian DST, including Google, Amazon, Expedia and Facebook, have previously said they’re in favour of the OECD process as opposed to a unilateral approach by Canada.

The OECD deal aims to end a four-decade-long “race to the bottom” by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, effectively allowing them to shop around for low tax rates.

The 15 per cent floor agreed to is, however, well below a corporate tax rate that averages around 23.5 per cent in industrialized countries.

Some developing countries that had wanted a higher rate said their interests had been sidelined to accommodate richer nations, while NGOS criticized the deal’s many exemptions, with Oxfam saying it effectively had “no teeth.”

The accord also promises to be a tough sell in Washington, where a group of Republican U.S. senators sent a letter to Treasury Secretary Janet Yellen saying they had serious concerns.

Negotiations have been going on for four years, with the deal finally agreed when Ireland, Estonia and Hungary dropped their opposition and signed up.

The deal aims to stop large firms booking profits in low-tax countries such as Ireland, regardless of where their clients are, an issue that has become more pressing with the growth of Big Tech giants that can easily do business across borders.