Canada is set to implement a new tax targeting major tech giants despite objections and threats from U.S. lawmakers, according to a report by Bloomberg.
The legislation to introduce this digital services tax is currently under consideration in Canada's Parliament, with plans for it to take effect starting this year.
Canada Will Be Taxing Tech Giants
According to the Finance Department's budget documents released on Tuesday, the proposed tax aims to impose a 3% levy on the digital services revenue generated by companies from Canadian users, provided their revenue exceeds C$20 million ($14.5 million) annually.
Notably, this tax would only impact companies with global revenue exceeding approximately C$1.1 billion, which includes tech giants such as Alphabet Inc. and Meta Platforms Inc.
The Canadian government noted that several other countries, including the UK, France, Italy, and Spain, have already implemented similar taxes on tech companies operating within their jurisdictions. Hence, Canada's move is seen as part of a global trend towards taxing digital services.
Canada's parliamentary budget officer estimates that this tax could generate around C$7.2 billion over five fiscal years, indicating a significant potential source of revenue for the Canadian government.
Finance Minister Chrystia Freeland has previously indicated that Canada would be willing to forgo implementing this tax if the U.S. were to ratify a global tax treaty facilitated through the Organization for Economic Co-operation and Development (OECD). However, with no progress on this front, Canada has decided to proceed with its plans.
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US Objections on Canada's Proposed Tax
The reluctance of the U.S. to endorse the OECD's multilateral tax treaty has prompted Canada to take unilateral action.
The Finance Department emphasized in the budget that continuous delays in the treaty's implementation at the international level have left Canada with no choice but to enact its own measures to address the issue of taxing digital services.
However, Canada's decision has not been well-received by U.S. lawmakers and officials, who argue that the tax unfairly targets American companies. They have warned of potential trade reprisals if Canada proceeds with its plans.
David Cohen, the U.S. ambassador to Canada, expressed concerns about the potential consequences of the tax in a speech last October, emphasizing that it could lead to tensions between the two countries.
Additionally, leaders of the U.S. Senate finance committee have urged the Biden administration to convey to Canada that, as noted by Bloomberg, there will be immediate repercussions if the digital tax is implemented.
The business community on both sides of the border has also opposed Canada's proposed tax on tech giants, with various groups calling on Finance Minister Chrystia Freeland to reconsider the decision.
As Canada moves forward with its plans to tax tech giants operating within its borders, it remains to be seen how this decision will impact its relationship with the United States and the broader global tech industry.
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