Canada’s government is seeking public input on draft tax legislation to implement a global minimum corporate tax rate, commonly known as GloBE, approved by the OECD’s Inclusive Framework.
The draft Global Minimum Tax Act, published on August 4, is in line with the OECD’s Pillar Two proposals as adopted by the Inclusive Framework. The government noted that it would update the draft tax law as necessary to reflect elements of the administrative guidance (including on the treatment of transferable and other tax credits) released this summer by the OECD.
Alongside the draft tax law, the government has published a “Table of Concordance,” which cross-references certain provisions of the proposed Global Minimum Tax Act with the source documents on which they are based, being the provisions of the GloBE model rules, the GloBE commentary, the administrative guidance in respect of the GloBE model rules, the GloBE Information Return and the GloBE Safe Harbours and Penalty Relief document, all as approved by the Inclusive Framework and published by the OECD.
The government has also published draft tax law to implement the Digital Services Tax Act. The Act would impose a tax of three percent on revenues derived by residents and non-residents of Canada from certain digital services they provide.
The targeted revenues are generally those that arise in connection with the digital service providers’ engagement with online users in Canada. These revenues include certain revenue relating to online marketplaces, online targeted advertising, social media platforms and the sale or licensing of user data.
The tax is aimed at large businesses with annual revenues of EUR 750,000,000 or more and Canadian digital services revenue (as defined in the legislation) of more than CAD 20,000,000.
The Digital Services Tax Act will come into force on a day to be fixed by order of the Governor in Council, but not earlier than January 1, 2024. The tax will apply on a calendar year basis, beginning with the year that includes the day that the DSTA comes into force. For the first year that the tax applies, tax liability will be calculated by reference to certain Canadian digital services revenue earned from January 1, 2022, up to and including that first year.
Last month, 138 tax jurisdictions agreed to a further one-year standstill on the imposition of any new domestic digital services tax measures, despite there being no deadline stipulating when Pillar One will come into force. However, Canada’s Finance Minister Chrystia Freeland confirmed that the government will implement its domestic digital services tax measures from January 2024 in the absence of any multilateral agreement on Pillar One.
Freeland said that this puts Canada at a disadvantage relative to countries which have continued collecting revenue under their pre-existing digital services tax rules. She said that Canada does not disagree with the substance of the multilateral treaty that has been negotiated, but will not support the extended standstill in the absence of any firm and binding multilateral timeline to implement Pillar One.
Comments must be received by September 8.