Sometimes one tax hides another. The Trudeau government’s desire to tax the capital gains of a minority of individuals and businesses more harshly monopolized attention last week. But another tax that is quickly forgotten could have a much greater impact on the country’s economy.
“The government is moving forward with its plan to implement its digital services tax,” federal Finance Minister Chrystia Freeland said during the presentation of its budget for the 2024-2025 fiscal year. “Faced with incessant delays in implementing an international and multilateral treaty, Canada can no longer afford to wait. »
The digital services tax was detailed last year. It was confirmed last week. It amounts to 3% of revenues generated in Canada by companies that offer online marketplace services, sell online advertising, own a social network or trade usage data collected on one or other of these platforms.
Subject companies are those whose global revenues exceed $1.1 billion and at least $20 million of these revenues come from Canada. This tax is expected to enrich the federal treasury by $6 billion over the next five years — and perhaps more, given that it is retroactive to 1er January 2022.
Ottawa formulated its law to very specifically attack the American digital giants: Alphabet (the parent company of Google), Amazon, Apple and Meta. It may still affect other companies, such as Airbnb, DoorDash, Expedia, etc.
Even in your pockets?
The tax is presented by the government as a means of repatriating to the country income that flees to other countries due to the borderless and fiscally unequal model of the digital economy: a multinational that establishes its headquarters in a country where The company tax is at its lowest and will enjoy a certain advantage over its rivals.
This Canadian tax, moreover, is the result of the inability of the Organization for Economic Cooperation and Development (OECD) to come up with a more global solution, which would involve countries other than Canada. Obviously, not all OECD members are losers in the game of the digital economy. The United States, Ireland and the Netherlands, to name just three, have an interest in keeping things as they are.
In short, to finance an increase in future spending by her government, Chrystia Freeland has decided to let go of the herd and sends Canada to fight alone with companies which, as they have already proven in the last year, have not fear of government threats.
The Online News Act clearly demonstrated this: if market conditions are unfavorable to them, these companies are ready to simply leave. Meta did it; not Alphabet.
This time, no one is going anywhere, but, as the Canadian Chamber of Commerce fears, we can imagine that those who will really pay this 3% tax will be… Canadian businesses and consumers who deal with digital giants. “Your next online purchase, your next delivered meal, your next vacation may cost you more” because of this new tax, she warns in a tone of horror.
She’s not entirely wrong: France adopted its own 3% tax on digital technology five years ago. Like Canada, France launched alone, its partners in the European Union preferring to procrastinate. The result: the price of digital services offered in France has increased by a percentage equivalent to the tax imposed by the French government. There is no reason to imagine that the situation will be different in Canada in the coming months.
The United States could bite
It gets even worse. For two reasons. First, the United States has already made known its dissatisfaction with this all-Canadian tax which seems mainly to target American companies. Then there is the Canada–United States–Mexico Agreement — CUSMA for short. This free trade agreement, which entered into force in 2020, must be renegotiated no later than 2026. After that, it will be good for the following 16 years.
Imagine how this will happen around the negotiating table when American negotiators welcome their Canadian counterparts… Worse still, imagine what the American president will say about this tax, and how he will want to renegotiate his partnership with Canada, if this president ‘calls… Donald Trump.
It would be surprising if Chrystia Freeland was not aware of the risk her new tax entails. After all, it was she who led the negotiations that led to CUSMA. She is also one of the people who, in Ottawa, are already preparing to renegotiate it in two years.
Why adopt a law that risks harming negotiations? Maybe Mme Freeland, aware of the unpopularity of her government, decided to leave a gift to her possible successor, if it were to happen, as polls indicate these days, that the Conservatives seize power in the fall 2025…
A poisoned gift of 6 billion dollars.