Canada agrees to delay its own Big Tech tax after OECD sets 15% global rate

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Canada will delay – and potentially drop – a digital services tax on big tech after the Organization for Economic Co-operation and Development reaches an agreement on a multilateral tax approach.

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The 136-country deal, reached on Friday, sets a minimum overall corporate tax rate of 15 percent for multinational companies. It will also require the world’s largest and most profitable companies – those with global sales exceeding about $ 28.7 billion per year and profitability above 10% – to pay taxes in the countries where they operate, even if they have no physical presence. the.

But in return, OECD countries will have to remove or delay the implementation of their own taxes on digital services. This includes the tax promised by Canada to tech giants, targeting 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 the minimum income criteria, would be covered by the tax. The government estimates it would bring in $ 3.4 billion over five years.

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The office of Finance Minister Chrystia Freeland has said the Liberal government will delay the implementation of the digital services tax from January 1, 2022 until January 1, 2024. Canada’s DST will only come into effect if the DST’s agreement the OECD has not entered into force. effective by 2024, but if the Canadian tax were implemented it would be retroactive.

“In this case, DST would be payable from 2024 for income earned on January 1, 2022. We sincerely hope that the swift 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 that “all parties remove all taxes on digital services and other similar measures relevant to all businesses, and commit not to not introduce such measures in the future ”. Countries cannot impose new taxes on digital services until at least the end of 2023, or until the new agreement is in effect.

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It is less clear that the tax will affect other initiatives that the Liberal government has promised to implement to fight big tech. The Liberals pledged to introduce, within 100 days of Parliament’s return, both legislation to force companies like Netflix to contribute to the Canadian content system, and legislation following the Australian model that would see Google and Facebook compensate the media for their content.

Finance Canada did not respond on time when asked if these counted as “other relevant measures” under the OECD agreement. An OECD spokesperson did not respond when asked for more information on what would be considered a relevant similar measure.

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Facebook and Google also did not respond when asked if they would consider the measures promised by the government on CanCon and the news to fall into this category.

Facebook sent a general statement on the OECD deal from its vice president for global affairs, Nick Clegg, who said the company was “happy to see an international consensus emerging.” Google pointed to a tweet from its vice president for political and government affairs, Karan Bhatia, who called the OECD agreement “an important step forward” and said “we hope the momentum will continue. “

Tech giants that would be affected by a Canadian DST, including Google, Amazon, Expedia and Facebook, have already said they support the OECD process as opposed to a unilateral approach by Canada.

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The OECD agreement aims to end a four-decade ‘race to the bottom’ by setting a floor for countries that have sought to attract investment and jobs by slightly taxing multinational companies, allowing them to look for low tax rates.

The agreed 15% floor, however, is much lower than a corporate tax rate that averages around 23.5% in industrialized countries.

Some developing countries that wanted a higher rate said their interests had been set aside to accommodate richer countries, while NGOs criticized the deal’s many exemptions, with Oxfam saying it did “No bite”.

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

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

The deal aims to prevent large companies from making profits in low-tax countries like Ireland regardless of where their customers are located, an issue that has become increasingly urgent with growth. big tech giants who can easily do business across borders.

– With additional reports from Reuters