NFTC urges Canada to reconsider digital services tax

Canada’s decision to levy a digital services tax despite OECD’s moratorium is shortsighted, Anne Gordon, Vice President for International Tax Policy, National Foreign Trade Council, has said.

Canada’s government, on August 4, 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 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.

Responding to the publication of the draft Digital Services Tax Act, Gordon said: “We are acutely disappointed with Canada’s decision today to move forward with their plans to impose a Digital Services Tax Act and their refusal to join the close-to-unanimous Pillar One DST moratorium announced by the OECD Inclusive Framework (IF) members last month.”

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.

Gordon said that Canada’s DST is discriminatory towards US companies and will harm international efforts to come to a global consensus on issues of taxation in the digital economy. “The retroactive application of the measure is also extremely troubling,” she said.

Gordon added: “This move is shortsighted. By endangering the international process, it increases the likelihood that other countries will implement their own unilateral measures, therefore creating a web of discriminatory, country-specific DSTs that will hinder the ability of our companies to do business abroad.”

Gordon urged the government to reconsider implementation of the Digital Services Tax Act and to continue actively engaging on Pillar One before moving forward with any unilateral measures.