Canada Imposes 'Digital Tax' on Google and Facebook, US Warns of Trade Retaliation

Multinational IT Taxation Measures to Take Effect After 2025
Canada Says "We Will Act Independently"... US Opposes

Conflicts between the United States and Canada are deepening over the ‘digital tax,’ which requires multinational information and communication technology (IT) companies like Google and Facebook to pay taxes in the countries where they actually generate revenue.

The Wall Street Journal (WSJ) reported on the 5th (local time) that the U.S. government is strongly opposing the Canadian government’s plan to impose a digital services tax on IT companies starting early next year.

Canada plans to impose a 3% tax from January 1 next year on internet services provided to Canadian citizens and on various data-related revenues generated in Canada.

Chrystia Freeland, Canada’s Minister of Finance, stated, “The digital services tax, which will be retroactively applied to internet companies’ 2022 revenues, will benefit Canada’s national interests.”

International discussions to allow the countries where multinational companies generate revenue to tax their income began in 2017. Governments around the world took action to address the issue of global giants like Google earning huge profits overseas while using various tax avoidance methods to evade taxes.

Google headquarters in Mountain View, California, USA
[Photo by EPA Yonhap News]

Last month, 138 countries agreed on the principle of ‘Digital Tax Pillar 1’ (reallocation of taxing rights). The Organisation for Economic Co-operation and Development (OECD)/Group of Twenty (G20) Inclusive Framework (IF) held its 15th plenary meeting in Paris from the 10th to the 12th of last month and issued an Outcome Statement on digital taxes (Pillar 1 and 2).

However, the treaty, originally aimed to be implemented next year, has been postponed by about two to three years. The IF plans to hold a multilateral treaty signing ceremony by the end of this year, and if it comes into effect in 2025, it will be implemented from 2026 or 2027 according to the treaty’s provisions.

Canada also promised to participate in the multilateral treaty in 2021. The problem is that Canada attached a condition at the time that if the treaty is not implemented by 2024, it would independently impose a digital services tax.

Therefore, with the implementation expected to be delayed, the Canadian government’s position is to proceed with independent taxation as announced.

The U.S. government has strongly opposed this move by the Canadian government. Since most major internet companies are headquartered in the U.S., the U.S. has shown a negative stance toward such taxation policies.

David Cohen, U.S. Ambassador to Canada, recently warned in an interview with local media, “If Canada acts unilaterally, the U.S. government will have no choice but to take corresponding retaliatory measures in trade.” Katherine Tai, U.S. Trade Representative (USTR), also demanded that the Canadian government cancel the introduction of the digital services tax.

Previously, in 2019, when France announced plans to introduce a digital services tax, former President Donald Trump expressed displeasure, calling it “a foolish act unfairly targeting American companies.”

He also proposed retaliatory measures, including a 25% ‘punitive tax’ on France’s major export products such as wine, stating, “American wine is superior to French wine.”

This content was produced with the assistance of AI translation services.