(Ottawa) With large deficits and rising health care spending due to the pandemic, provinces are looking for new sources of revenue. Several of them are asking the Trudeau government to share the $800 million jackpot that the new tax on digital services should bring into Ottawa’s coffers annually.
Posted at 5:00 a.m.
In principle, the 3% tax is to come into force on 1er January 2024, but it would be retroactive to January 2022. Quebec is one of the provinces that knocked on the door of the Department of Finance in Ottawa to demand a sharing of this new tax, learned The Press.
Documents recently obtained under the Access to Information Act reveal that this request has already been the subject of discussions between federal officials and their provincial colleagues.
“Several provinces have asked if the federal government plans to share with them revenues from the proposed digital tax,” reads a briefing note to Deputy Finance Minister Michael Sabia dated 13 May 2021.
In Quebec, a source confirmed that the Legault government is keen to get its fair share of this tax, if it sees the light of day.
BLAIR GABLE PHOTO, REUTERS ARCHIVES
Chrystia Freeland, Minister of Finance
In her most recent budget, Finance Minister Chrystia Freeland announced that Canada plans to impose a 3% digital services tax that would apply to the revenues of large digital service companies such as Google, Facebook and Amazon that do business in the country. This tax would apply from 1er January 2024, but would affect revenues generated in Canada that were pocketed from 1er January of this year. It would apply to income of $20 million or more that has been earned by a consolidated company or group with a worldwide turnover of at least 750 million euros (approximately C$1.06 billion ).
But this new tax would see the light of day only if the international agreement aimed at imposing a minimum tax of 15% on multinational companies is not ratified in time by the signatory countries.
After several months of negotiations held under the aegis of the OECD, Canada and 136 other countries agreed last October to apply a minimum tax rate of 15% to multinationals starting in 2023. The United States is part of this agreement. But its ratification by Congress is far from certain.
Revenue of 4.5 billion
This major reform of the international tax system, which aims to put an end to the “race to the bottom” of the corporate tax rate, should allow Canada to pocket approximately $4.5 billion in additional revenue per year, according to the estimates of the Ministry of Finance. For all the countries that have signed the agreement, the additional income could reach 216 billion thanks to this minimum tax.
The option of imposing a tax on digital services would therefore be thrown out the window, if the international agreement is ratified by all the signatory countries within the prescribed deadlines. Minister Chrystia Freeland’s clear preference is to ensure that the international minimum tax agreement becomes a reality. The United States, for its part, has already made it known that it opposes the Trudeau government’s plan B in the event of failure of the international agreement.
“Multilateral agreements have always been a priority for Canada. The OECD agreement will put Canadian workers and businesses on a level playing field in the global economy, and Canada welcomes the work being done with its international partners to bring into force this ambitious and enshrine its implementation in law. Canada has a clear national interest in this multilateral agreement which protects against the erosion of the tax base and which will generate additional revenues for Canada,” said Minister Freeland’s spokesperson, Adrienne Vaupshas. .
Canada’s strong and essential social safety net rests on a strong national tax base. That is why those who do business in Canada must pay their fair share.
Adrienne Vaupshas, spokesperson for Minister Chrystia Freeland
“To protect the interests of Canadians at all times, we intend to introduce legislation that will enact a Digital Services Tax (DST). We sincerely hope that the timely implementation of the new international system will make this process unnecessary,” she added.
In Quebec, it is believed that Ottawa’s plan B must include a revenue sharing formula. Especially since the Legault government plans to integrate the new tax rules into the Quebec tax system, if the international agreement negotiated by Canada finally goes ahead.
In the event of a failure of the international agreement that would force Canada to implement a digital services tax, “it is essential that the revenues from this tax be subject to a sharing agreement with the provinces and territories,” it was argued.
“The current erosion of the corporate tax base affects both the federal government’s revenues and those of the provinces and territories,” it was also pointed out.