Canada will hang tough on technology companies. That was the message from government officials this week after Meta, the company that owns Facebook and Instagram, began blocking news articles from appearing on its platforms in Canada.
[Read our story about Meta’s news ban here.]
That wasn’t the only example this week of Canada’s holding firm on tech. The release on Friday of an explanatory note — a document produced in the legislative process to clarify parts of a bill or amendments — about the Digital Services Tax Act, which goes into effect as soon as January, made fewer waves.
It is a 3 percent tax on the revenues of large technology companies, including those with online marketplaces, like Walmart and Amazon, and social media platforms, like Meta.
[Read this article from 2020: How Tech Taxes Became the World’s Hottest Economic Debate]
The tax in Canada will apply to companies with annual revenue of at least 750 million euros, a threshold set through the Organization for Economic Cooperation and Development.
The O.E.C.D. is leading negotiations with more than 130 countries in a global deal to end tax havens, but Canada has broken away from the pack by setting its own tax amid delays.
My colleagues on the Business desk, Alan Rappeport and Liz Alderman, have been covering the O.E.C.D. negotiations and have reported that the deal is expected to generate around $150 billion in global tax revenue each year.
[Read Alan and Liz’s article here: Global Deal to End Tax Havens Moves Ahead as Nations Back 15% Rate]
Austria, France, Italy, Spain and Britain imposed their own digital services taxes in 2021 and were soon after threatened with tariffs by the United States. Washington stood down after the European nations agreed to eventually remove their taxes, but only after the implementation of the first part of the global agreement, which would give taxing rights to the jurisdictions where those companies make profits. At the time, Canada also agreed to pause its digital services tax and wait for the deal to come into effect.
But in July, several of the countries moved to delay for one year the implementation of any new domestic digital services taxes.
Chrystia Freeland, the deputy prime minister, said in a statement last month that Canada “cannot support the extended standstill” and would plan to go ahead with its digital services tax in January.
“We are acutely disappointed with Canada’s decision today to move forward with their plans,” the National Foreign Trade Council, an American lobby group, said in a statement on Friday after the publication of the act’s explanatory note.
It also called the act “clearly discriminatory toward U.S. companies.” But that characterization verges on disinformation, said Wei Cui, a tax law professor at the University of British Columbia who is writing a book on the digital services tax.
“Canada has come up with a principled way of levying the tax that should not provoke a trade controversy,” Professor Cui told me, adding that domestic online retailers like Canadian Tire and Loblaw Companies would also be taxed in the same way as American companies.
Professor Cui expected that the law would pass after Parliament resumes in September and said it had a robust policy justification.
“Online platforms generate a specific kind of profit — and in academic terms, I call it ‘platform rent’ — that should be taxed,” he said, likening it to existing special taxes imposed on companies in the natural resource, timber, and oil and gas industries.
“It’s not clear to me why the Canadian government has not pushed back” against accusations that the law is discriminatory, Professor Cui said, “because that’s an easy argument to make.”
Vjosa Isai is a reporter-researcher for The New York Times in Toronto. Follow her on Twitter at @lavjosa.
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