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(Bloomberg) — Canada is proceeding with its digital services tax on technology companies such as Meta Platforms Inc. despite a Group of Seven agreement that resulted in removing the Section 899 “revenge tax” proposal from US President Donald Trump’s tax bill.
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The first payment for Canada’s digital tax is still due Monday, the country’s Finance Department confirmed, and covers revenue retroactively to 2022. The tax is 3% of the digital services revenue a firm makes from Canadian users above C$20 million ($14.6 million) in a calendar year.
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Keeping the digital tax will not affect the G-7 agreement, which focuses on global minimum taxes, the Finance Department said. The Section 899 provision would have targeted companies and investors from countries that the US determines are unfairly taxing American companies.
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“It’s a little bit surprising that the US decided to withdraw Section 899 without having an agreement on the DST,” Ronald Nobrega, partner with Fasken Martineau DuMoulin LLP in Toronto. “If digital services taxes are addressed, presumably they’ll be addressed globally with the many countries that have a DST, not just with Canada. So this may be a process that takes many months or years to play out.”
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Finance Minister Francois-Philippe Champagne suggested to reporters last week that the digital tax may be negotiated as part of broader, ongoing US-Canada trade discussions. “Obviously all of that is something that we’re considering as part of broader discussions that you may have,” he said.
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Business groups in the country have opposed the tax since it was announced, arguing it would increase the cost of digital services and invite retaliation from the US. It also raised the ire of US businesses and lawmakers. A group of 21 members of US Congress wrote to Trump earlier this month asking him to push for the tax’s removal, estimating the June 30 payment will cost US companies $2 billion.
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Before scrapping its digital services tax, Canada wants to see an OECD deal on policies that expand a country’s authority to tax profits earned within that country even if a company doesn’t have a physical location there — which is different from a global minimum tax.
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These extraterritorial taxes are part of a broader OECD effort to improve tax fairness globally, dubbed Pillar One and Pillar Two. But Trump has consistently railed against these efforts, arguing the policies developed are unfair to US companies.
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—With assistance from Laura Dhillon Kane.
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English (US)