There has been mounting concern over the past few years over whether some of the world’s largest companies – primarily big tech – pay their fair share of taxes. This issue has arisen in countries around the world leading to new digital services taxes that primarily target the U.S. tech giants and which in turn often leads to the U.S. threatening to retaliate in response. Canada now finds itself embroiled in these battles as Finance Minister Chrystia Freeland has proposed a retroactive digital services tax to take effect in 2024 if by that time a newly reached OECD agreement has not taken effect. Professor Reuven Avi-Yonah is a law professor at the University of Michigan and director of the school’s international tax LLM program. He joins the Law Bytes podcast to discuss digital services taxes, the OECD deal, and what might happen if the international agreement falls apart.
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The Law Bytes Podcast, Episode 115: Reuven Avi-Yonah on the Past, Present and Future of Digital Services Taxes
The Canadian government’s decision to move ahead with the Digital Services Tax Act, legislation that will take effect in 2024 should the international agreement at the OECD fail to materialize by that date, is problematic for reasons that extend beyond sparking a trade battle with the United States and potentially leading to billions in tariffs on Canadian goods and services. The plan also appears to violate Canada’s commitment at the OECD, in which all members agreed to a moratorium on introducing new digital services taxes.
Should Have Seen This Coming: U.S. Raises Prospect of Retaliation Over Canada’s Digital Services Tax Plans
For the past two years, Canadian digital tax policy has been on a collision course with Canadian trade policy. The Liberal government committed in the 2019 election campaign to a digital services tax primarily designed to target large U.S. technology companies that generate significant revenues in Canada from online advertising and user data. The policy has been adopted in several other countries, repeatedly sparking a response from the U.S. that threatens to retaliate with tariffs on sensitive sectors of the economy. For example, after France announced plans for a similar tax, the U.S. threatened to levy billions in tariffs on French products.
As the trade threats escalate, the effort to strike an international agreement on the issue has gained increasing traction (my Law Bytes podcast last February with Professor Itai Grinberg provides a great backgrounder into the issue). After a preliminary deal was struck in October on an international approach, the U.S. dropped the tariff threat against several countries. Yet as efforts to finalize and implement the deal continue, Canadian Finance Minister Chrystia Freeland announced this week that new legislation will be introduced to create a Canadian digital services tax (this is distinct from digital sales taxes, which are currently in effect).
Digital tax policy has emerged as major issue around the world. Canada is no exception. Late last year, the Canadian government announced plans to act on all three fronts: Bill C-10 seeks to address mandated Cancon payment and Finance Minster Chrystia Freeland has promised digital sales taxes by July and what sounds like a digital services tax in 2022.
What is a DST and how might Canada’s digital tax plans play out on the international front? I spoke with Georgetown University professor Itai Grinberg, a leading expert on cross-border taxation and digital tax issues on December 15, 2020, shortly after the government’s announcement. He joined the Law Bytes podcast to talk about the longstanding approach to multi-national tax policy and the emerging challenges that come from the digital economy.