California Internet tax bill breakdown by Stephanie Robogeisha (CC BY-NC-SA 2.0) https://flic.kr/p/9YoqbP
Digital Tax
Canadian Government Quietly Backs Down on its Implementation Plans for a Digital Services Tax
The federal government has quietly backed down from its plans to implement a new digital services tax as of January 2024 that the Parliamentary Budget Officer estimated would generate billions in revenue. It did not make the headlines or receive much promotion, but after months of insisting that a digital services tax would take effect in Canada in January 2024, the government has now removed that implementation deadline in the Fall Economic Statement. The battle over the proposed tax had sparked increasing anger between Canada and the U.S., with dozens of U.S. Senators and Representatives signing letters urging the government to delay its plans. The Canadian plan remains to establish a retroactive three percent tax that will hit a wide range of businesses, but given fears moving ahead now would jeopardize a global agreement that is designed to address the digital services tax issue, Canada has seemingly faced the obvious reality and backed down.
It’s Complicated: Unpacking the Risks Behind Canada’s Digital Services Tax Plan
The Canadian government released a detailed document last week outlining the specifics behind its draft Digital Services Tax Act. No actual legislation has yet been passed, but the government is providing guidance on how the potential law would be interpreted assuming it takes effect next year. The document has sparked criticism from business groups and the U.S. government given that it envisions a retroactive three percent tax that will hit a wide range of businesses. Further, the Canadian plan is facing significant opposition from many OECD countries since it may jeopardize a global agreement that is designed to address the digital services tax issue. While the digital services tax (DST) is typically framed as a tax on big tech, the reality is that the Canadian version extends far beyond just companies such as Google and Facebook, potentially including major Canadian retailers such as Canadian Tire, Loblaws, and others.
My view is that unlike Bills C-11 and C-18, which create cross-industry subsidy models funded by tech companies to support government policy, appropriate taxation models is the far better approach to ensure that companies “pay their fair share”. While a DST may be a good approach (particularly if part of a global system), the Canadian plan to implement the tax retroactively next year creates some significant risks. In fact, our current approach raises the prospect of U.S. tariff retaliation, opposition from many allies at the OECD, and expanded news link blocking in response to Bill C-18.
The Law Bytes Podcast, Episode 176: A Mid-Summer Update on Bills C-11, C-18, the Government’s Cabinet Shuffle, and the Brewing Battle over Digital Taxes
Coming off a week in which the government engineered a major cabinet overhaul that saw Heritage Minister Pablo Rodriguez replaced by Pascale St-Onge, an escalation of the battle over digital services taxes, and which featured significant news on both the Bill C-11 and Bill C-18 fronts, this week’s Law Bytes podcast provides a mid-summer update on recent developments. Barring some urgent news, the podcast will be taking a break in August and return in September.
The Biden Visit to Canada: Why Digital Policy is Emerging as a Serious Trade Tension
The U.S. President Joe Biden’s visit to Ottawa this week has begun to place the spotlight on the mounting tensions over digital policy. For months, Canadian officials have not only been dismissive of the issue, but – as this week’s fishing expedition into Google and Facebook demonstrates – have not shied away from making the issue front and centre. I have been posting about trade-related risks with Canadian digital policy for months, noting that the risks are real and could result in billions in retaliatory tariffs that hits some of Canada’s most sensitive sectors. Indeed, this issue has been raised at every major meeting between senior trade officials for the past year. Is retaliation likely to happen? Certainly not immediately, but the longer the issues fester, the greater the impediment to advancing Canadian trade priorities. As Scottie Greenwood notes, “these are top-of-mind issues. They are not a small obscure issue.”
“Ongoing Concerns”: U.S. Objections to Canadian Digital Policies Spreads to the Senate
U.S. concerns with Canadian digital policy continues to mount with both the U.S. Administration and Senators from both parties raising fears of discrimination. U.S. pressure seems likely to grow as the issue emerges as a major irritant in the bi-lateral trade relationship with Canada’s most important trading partner. With U.S. President Joe Biden scheduled to visit Ottawa later this winter, it seems likely that digital policy – particularly a proposed digital services tax, Bill C-11, and Bill C-18 – will be on the agenda at the meeting.
The latest signals came last week at a bilateral meeting between U.S. and Canadian trade officials. The U.S. readout of the meeting states:
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