The Digital Services Tax is now in effect.
Foreign tech giants must now pay a three per cent levy on revenue from Canadian users, retroactive to 2022, after the federal government enacted the measure with an order-in-council on June 28.
Many of those large companies are based in the United States and the American government and business communities on both sides of the border have called for Ottawa to stop the measure.
“It’s a risky idea,” University of Ottawa professor Michael Geist told Global News.
“If we take a look at how (the United States) reacted to similar taxes from other countries in the past,” he continued, “they’ve used tariffs to try to make up for what they perceive to be lost revenue, or to almost punish other countries for moving in that direction.”
The Office of the United States Trade Representative previously said it will do what’s necessary to halt Canada’s tax on large foreign digital services companies, while a group representing giants like Amazon, Apple and Uber, called on President Joe Biden to take formal steps under the U.S.-Mexico-Canada Free Trade Agreement.
“With Canada’s DST now law, the time has now come to announce action,” vice-president of the Computer and Communications Industry Association Jonathan McHale said in a news release.
Ten similar groups also called on the U.S. government to take action.
“It’s quite reasonable to expect that the U.S. will take measures,” Matthew Holmes with the Canadian Chamber of Commerce said.
He said it is a “sensitive time” now in the U.S., with presidential and congressional elections later this year.
“Right now does not seem to be the time where we would be adding more irritants to the trade relationship,” he told Global News — especially because Canada relies on trade with the United States more than Washington relies on trade with Ottawa.
“We believe in a win-win situation,” Deputy Prime Minister and Finance Minister Chrystia Freeland said, speaking in Milton, Ont., adding Canada moved ahead after many countries failed to reach a multilateral agreement about digital service taxes.
“It’s simply not reasonable, not fair for Canada to indefinitely put our own measures on hold,” she said, referring to other G7 countries like the U.K. and France that have digital services taxes.
Geist said the premise behind a digital services tax is that “it’s long been argued that some of the large multinational companies don’t pay their fair share of taxes,” because they can be structured to direct revenue to other jurisdictions.
The Liberal government promised the tax as part of their 2019 election platform. The Conservatives and New Democrats had proposed similar levies.
The Liberals had delayed implementing it amid global efforts to build a broader, international tax plan.
“Canada has been at the table, but now they’ve broken rank,” Holmes said, speaking from Ottawa.
Freeland said Canada acted collaboratively with the U.S. and continues to engage with the United States over the issue.
Geist said the new tax could yield billions of dollars for Canada. But because it’s retroactive to Jan. 1, 2022, that means getting the money is “literally a matter of going through billions or perhaps even trillions of transactions” for every ad that’s appeared on Google in Canada to see if the levy applies.
“This is about levelling the playing field,” Geist suggested, “and more about the government seeing a potential cash grab.”
Holmes said he believes tech companies will pass the tax on to consumers in the form of higher digital subscriptions for streaming services.
— with files from Jillian Piper, The Canadian Press’ Kelly Geraldine Malone and Reuters