As the U.S. continues to threaten other countries with retaliation if they proceed with a digital services tax, Canada’s trade minister says the question of how to ensure profitable search engines, social media platforms and online retailers pay their fair share can only be tackled on a multilateral basis.
France is preparing to target internet companies like Google, Amazon and Facebook with a three per cent tax on the revenues from their digital business in that country. Canada may eventually follow France’s lead — but for now, it’s not prepared to go it alone.
Speaking while in transit to the World Economic Forum in Davos, Switzerland Wednesday, Small Business Minister Mary Ng said her government is looking at this issue in terms of what’s in the best interests of Canadian businesses.
“I do think it’s important to tackle this on a multilateral basis,” she said. “You do need to work through those processes.”
Taxing multinational tech firms was part of the Liberals’ re-election platform, which committed to “work to achieve the standard set by the Organization for Economic Co-operation and Development (OECD) to ensure that international digital corporations whose products are consumed in Canada collect and remit the same level of sales taxation as Canadian digital corporations.”
The proposal would tax the proceeds of online advertising and user data sales for digital firms with global revenues of more than $1 billion and Canadian revenues of more than $40 million. The Liberal platform projected $540 million in new revenue in 2020-21 from “making multinational tech giants pay their fair share.”
But Canada may not be able to proceed with its plans and start banking that kind of income this spring. Taxing multinational tech firms is easier said than done.
U.S. warned Canada not to proceed
Digital businesses models cross borders: a company may be headquartered and taxed in one country while it profits from its business activities in many others.
That’s why the 36 member countries of the OECD are trying to reach an international agreement on how to tax digital companies by mid-2020. Governments share a common concern: multinationals setting up in low-tax jurisdictions and avoiding taxes in others.
Ng told CBC News Wednesday that Canada needs to continue to work though this process.
Last fall, the U.S. Chamber of Commerce was among American industry groups urging the Trump administration to oppose Canada’s adoption of a French-style digital tax.
American digital companies believe they could be subject to “double taxation,” where they end up paying tax on the same revenue in both countries — something the tax treaty in place between the U.S. and Canada is supposed to prevent.
The U.S. groups warned that the Liberal proposal could undermine American investments in the Canadian tech sector and be inconsistent with Canada’s international trade commitments.
World Trade Organization rules, as well as trade agreements like the recently renegotiated North American free trade deal, are supposed to prevent discrimination between foreign and domestic companies in areas like tax policy. Countries aren’t allowed to create arbitrary rules to game the system in favour of their own corporations.
NDP Leader Jagmeet Singh, whose party also proposed taxing digital firms in the last election, said “it makes no sense at all” that an international foreign company could make money in Canada and not pay any taxes.
Speaking during a break in caucus meetings Wednesday in preparation for the return of the House of Commons next week, Singh said that when working class people are paying their fair share, it’s wrong for multinationals to do otherwise. He brushed aside the risk of retaliation.
“I don’t think that we should live in fear of Mr. Trump. I don’t think we should make decisions based on fear,” he said. “Particularly when our decisions are the right thing to do.”
French tax now on hold
Talks Wednesday in Davos brought a temporary truce to a heated trade dispute over France’s tax, which targets companies that have global revenues of over 750 million euros ($1.09 billion Canadian) and French revenue of over 25 million euros ($36 million Canadian).
The thresholds are meant to offer French start-up companies room to grow.
French Finance Minister Bruno Le Maire said he’d agreed to postpone collection of the tax until December — after the next U.S. election cycle — in return for a commitment from U.S. Treasury Secretary Steven Mnuchin to hold off on the retaliatory sanctions President Donald Trump threatened to impose on French exports like champagne and cheese.
Other European countries, including Austria, Italy, Spain and Britain, are considering similar taxes.
Sajid Javid, the British Chancellor of the Exchequer (finance minister), told a panel in Davos Wednesday his country plans to proceed with its two per cent tax in April as a “temporary tax” until there is an international agreement on how to proceed.
Mnuchin then told the same panel discussion that the pair needed to have “some private conversations” about this because such a tax would be discriminatory.
“If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on their car companies,” Mnuchin said.
More talks between Le Maire, Mnuchin and the head of the OECD, José Ángel Gurría, are expected Thursday.
Gurría urged the countries to take the “time and the space” necessary to reach a deal and avoid bilateral confrontations.