Negotiations on a minimum tax for multinationals are not progressing enough for the taste of the Canadian government, which reiterated on Wednesday its threat to introduce a new tax on digital services as early as January 2024, even if 138 countries ask it to wait a year. moreover.
“We made it clear that Canada had to apply its own TSN [taxe sur les services numériques] from 1er January 2024 if an agreement […] had not come into effect on that date,” Canada’s Finance Minister Chrystia Freeland said in a statement.
It refers to the ongoing negotiations conducted by the Organization for Economic Co-operation and Development (OECD) and the G20, bringing together the majority of the countries of the world and which should in theory give birth at the end of last spring to an agreement on the first component — or “pillar” — of international tax reform. The objective is first to make multinational companies pay taxes where they are, then to arrive at a second “pillar” consisting of a minimum tax of 15% for globalized companies.
However, no final agreement has yet been reached between the member countries of the OECD/G20 Inclusive Framework. The latter instead published a “Declaration of result” on Tuesday, a document which boasts of certain advances, but does not report any date of entry into force for this first component. However, it is specified that the countries participating in the negotiations must “refrain from imposing” any tax on digital services for the next year and a half, i.e. until December 31, 2024.
Canada wants its tax
This is a problem for Canada, which is pushing for a quick agreement. Minister Freeland announced her intention in 2021 to create a 3% tax on digital services, but put this project on ice until January 2024 to give international negotiations a chance.
If no agreement is reached in the next five and a half months, the government therefore plans to apply this special tax, retroactively to 2022, in particular on e-commerce, social media and web advertising. It would be subject to companies whose turnover exceeds 750 million Euros worldwide, and 20 million dollars in Canada, according to the draft of a bill which has not yet been tabled before the Parliament or approved by elected officials.
Tuesday’s statement from countries participating in the OECD/G20 Inclusive Framework is very clear: such a tax should not occur before the end of negotiations in order to “prevent disruptions or delays in the ratification” of the eventual international agreement. Canada did not approve this text, alongside a handful of countries: Russia, Belarus, Pakistan, and Sri Lanka.
“This situation puts Canada at a disadvantage compared to countries that have continued to collect revenues under their [taxes] pre-existing, ”explains the press release from Chrystia Freeland, who is also Deputy Prime Minister.
Reputation at risk
According to Jean-Pierre Vidal, full professor in the Department of Accounting Sciences at HEC Montreal, Canada is putting its reputation at risk by acting in this way. He describes the situation as “delicate and uncomfortable”, especially for the relationship with the United States and its big companies.
“We have not yet found all the consequences of this kind of multilateral tool. It’s complex. It is necessary to avoid that there are holes. […] I’m not sure Canada is helping to speed things up,” he says.
The ongoing negotiations can still lead to an agreement in time, suggests the Statement of Results, which still provides for a “signing ceremony organized by the end of the year, with the objective of making possible the entry into force of the Multilateral Convention in 2025”. In this scenario, the federal government would not create its own digital services tax.
A study by the Parliamentary Budget Officer has already estimated that such a tax could generate up to a billion dollars a year for the coffers of the federal government. The idea of a minimum global tax of 15% on multinational companies, the second part of the negotiations led by the OECD, would bring in more than two and a half billion dollars for Ottawa as of the fiscal year 2026-2027, according to the last federal budget.