Liberals announce legislation to set stage for digital services tax

The Liberal government announced legislation Tuesday that will pave the way for the implementation of a digital services tax, but it contains no date for when the tax will come into effect.

The government first pledged in 2020 to bring in a digital services tax (DST) on big tech companies. The tax would apply to revenues of large firms providing digital services such as e-commerce, social media and online advertising.

Businesses were told at the time that Canada would not impose the DST before Jan. 1, 2024, although when the tax was levied it would impact revenues as of Jan. 1, 2022, according to Finance Canada. 

The Liberal government said that it agreed to delay implementing its DST to give time for an international treaty between members of the Organization for Economic Co-operation and Development (OECD) to settle how the tax will be structured. 

"We can act unilaterally," Deputy Prime Minister and Finance Minister Chrystia Freeland said Tuesday. "We have also always said if [the treaty] did not come into force at the end of this year, then Canada would have no choice but to introduce our own [digital services tax]." 

Explanatory notes for a draft version of the tax published in August explain that a three per cent tax will be imposed on companies that have a total annual revenue of more than 750 million euros, or about $1.1 billion Cdn. 

Firms facing the tax would also be required to have "Canadian digital services revenue" of more than $20 million in a fiscal year.

With or without Canada's allies

Finance officials speaking on background explained that while the ways and means motion introduced in the House of Commons outlining the DST — and other measures from the fall economic statement and budget  — does not contain an implementation date, cabinet can set a date when it sees fit, providing the legislation is in place 

"It's really a matter of fairness," Freeland said. "There are other countries, our partners, who are today collecting DST. That DST is helping make essential investments in their countries, and it's just not fair for Canadians to be deprived of that revenue."

Freeland said it's her preference for Canada to impose the tax in lockstep with its allies, and is hopeful that ongoing negotiations with OECD members will bear fruit before cabinet moves in Canada, but she said she will move on her own if she has to. 

"We have always preferred a multilateral outcome, and so we are continuing to talk about this with our partners around the world," she said.  

LISTEN | Why a new tax on big tech companies could spur the next Canada-U.S. spat 

The House9:05Why a new tax on big tech companies could spur the next Canada-U.S. spat

Move over, softwood lumber — there's a new trade war on the horizon. CBC's Emma Godmere looks at Canada’s move to press ahead with its long-planned Digital Services Tax on global tech giants and why it has U.S. lawmakers fuming. Tax law professor Allison Christians, former Canadian consul general James Villeneuve, cross-border trade watcher Laura Dawson and the Wilson Center's Christopher Sands weigh in.

Anne Gordon of the U.S.-based National Foreign Trade Council told CBC News on Tuesday that levying the DST on revenues back to the beginning of 2022 is "heavily discriminatory and doesn't allow companies to plan."

"The law still isn't finalized and companies need to be able to prepare — prepare how to pay the tax, prepare financially and make business decisions on whether they want to remain in Canada if this tax is going to go into place," she said. 

James Villeneuve, a senior business adviser in the Toronto law office of Fasken who previously served as Canada's consul general in Los Angeles, said there are a few reasons why Canada is committed to the tax.

"Revenue to the government is one big benefit," he told CBC Radio's The House last month. "The second benefit could be a communication policy that says we as a country are prepared to dig in against giant tech companies that aren't based in the country."  

The ways and means motion also gave notice that the federal government is moving forward with a number of initiatives announced in the fall economic statement including:

• A tax credit for investment in the development of carbon capture and storage. 
• A clean technology tax credit tied to investments that create unionized-level jobs. 
• Removing GST on psychotherapy and counselling therapy.
• Removing the GST on low-income, purpose-built rental housing.
• Introducing a 15-week shareable employment insurance adoption benefit.
• Requiring paid leave for federally regulated workers who experience pregnancy loss.
• Implementing a legal framework allowing the government to collect money from tobacco companies to help governments respond to the "tobacco epidemic."

The ways and means motion also gives notice that the Liberal government will introduce legislation containing several measures to modernize competition rules in Canada, including by giving the Competition Bureau the power to subpoena information from companies.