Canada to tax digital services providers such as Facebook, Google by 2022

The Organisation for Economic Cooperation and Development wants to ensure digital behemoths pay their share of taxes

Reuters : December 01, 2020

Canada plans to impose a tax on corporations providing digital services from 2022 that will stay in place until major nations come up with a coordinated approach on taxation, the Finance Department said on Monday. 

The Organisation for Economic Cooperation and Development is working on a common approach to ensure digital behemoths, such as Alphabet Inc’s Google and Facebook Inc, pay their share of taxes as the coronavirus hammers budgets.

Canada said it was concerned about a delay in reaching agreement. The threat of digital services taxes has prompted threats of trade retaliation from outgoing US President Donald Trump’s administration.

The new tax would come into effect on Jan. 1, 2022, and remain in place until a common approach is agreed upon. The measure would raise federal revenues by C$3.4 billion ($2.6 billion) over five years, starting in the 2021-22 fiscal year.

“Canadians want a tax system that is fair, where everyone pays their fair share,” Finance Minister Chrystia Freeland told legislators in the fall economic update.

“Canada will act unilaterally, if necessary, to apply a tax on large multinational digital corporations, so they pay their fair share just like any other company operating in Canada.”

Foreign-based vendors with no physical presence in Canada will also have to start collecting sales taxes on products such as mobile apps, online video gaming and streaming. The measure should raise C$1.2 billion over five years.

Ottawa also plans to oblige people renting out short-term accommodation to charge sales taxes, saying popular digital rental platforms do not currently have to impose the taxes. That puts hotels at a disadvantage, it added.

The government is also clamping down on the award of stock options to prevent “high-income individuals employed at large, long-established, mature firms” from taking unfair advantage.

From now on, a C$200,000 annual limit will apply to stock option grants for those people. Ottawa did not provide a definition of high-income individuals or mature firms.

The rules will not apply to startups or emerging companies, which often cannot afford to pay competitive salaries and instead offer stock options. The new rules will generate about C$200 million in federal revenues, the Finance Department said.