Canada announces plans for ‘digital tax’ on tech giants such as Facebook and Google

Canada has announced a plan to tax corporations providing digital services in the country, including giants like Google and Facebook, to be enforced from the year 2022 and until major nations can come up with a coordinated approach.

The government estimates that the measure will increase federal revenues by CAN$3.4bn (£2bn) over five years.  

Canada explained that it is working with the Organisation for Economic Co-operation and Development (OECD) – a group of 37 developed nations including the US – to develop a coordinated approach by mid-2021 to ensure digital platforms pay their share of taxes. US president Donald Trump has previously threatened retaliation against any efforts to enforce such taxation.  

The move by the Canadian administration was announced by finance minister Chrystia Freeland on Monday as part of the Fall Economic Statement, which also updated legislators on the economic impacts of the Covid-19 pandemic.

“Canadians want a tax system that is fair, where everyone pays their fair share… Canada will act unilaterally, if necessary, to apply a tax on large multinational digital corporations, so they pay their fair share just like any other company operating in Canada,” said Ms Freeland.

Ms Freeland said in the statement that foreign-based vendors will have to start paying taxes on Canadian sales of digital products or services like “mobile apps, online video gaming and video and music streaming” regardless of whether they have a physical presence in the country.

It estimated that this alone will raise federal revenues by $1.2bn (£700m) over five years starting in 2021-22.  

She said that the fact these services do not currently pay any such tax in Canada puts homegrown vendors of digital products and services at a “distinct competitive disadvantage”.

The statement also says people or digital accommodation platforms renting out properties on a short term basis need to charge tax, a measure that could raise $360m (£200m).  

A 2019 study estimated that more than 30,000 housing units in Canada are being used for short term rental accommodation.  

Though the statement does not name any platform individually, references to marketplaces point heavily towards global digital service providers like Google, Facebook and Apple, while the mention of online, short-term rental accommodation bookings is likely to refer primarily to the largest provider – Airbnb.

The Canadian government said it was essential for tax rules to keep up with the news ways in which business is conducted, with the “collection of user data and content contributions” classed as value-creating activities in a tax jurisdiction. The statement said the government was “committed to ensuring that everyone pays their fair share so that Canada continues to have the resources needed to invest in people and keep our economy strong”.