Canada will enact digital services tax from 2024: Chrystia Freeland

Canada will enact digital services tax from 2024: Chrystia Freeland

Canada’s Finance Minister Chrystia Freeland has said that the government will implement its domestic digital services tax measures from January 2024 in the absence of any multilateral agreement on Pillar One.

Earlier this week, 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.

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.

Freeland 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.

Also Read: 138 tax jurisdictions agree on global tax reform, defer digital tax measures

“Two years ago, we agreed to pause the implementation of our own digital services tax (DST) to give time and space for negotiations on Pillar One. But we were clear that Canada would need to move forward with our own DST as of January 1, 2024, if the treaty to implement Pillar One has not come into force,” the minister said.

Canada first announced plans to implement a digital services tax in the 2020 Fall Economic Statement. The tax was due to take effect on January 1, 2022, however, the government subsequently agreed to temporarily pause the imposition of the tax to allow time for negotiations on Pillar One.

Freeland said: “Canada’s priority and preference has always been a multilateral approach. We continue to strongly support the two-pillar plan agreed to in 2021 and we have been actively working with our international partners to bring it into effect. As confirmed in Budget 2023, we are moving ahead with legislation to implement the Pillar Two global minimum tax in Canada, starting at the end of 2023.”

She said: “Canada strongly supports international efforts to end the corporate tax race to the bottom and to ensure that all corporations, including the world’s largest corporations, pay their fair share. Canada’s strong and essential social safety net is built on a robust national tax base, which depends on those who do business in Canada paying their fair share of tax.”

“Canada has a clear national interest in the two-pillar plan, which protects against the erosion of Canada’s tax base and which will generate additional revenue for Canada,” she said.