Canada defends digital taxes but sees path for global deal

7:35 pm Tuesday, July 18th, 2023

By Ismail Shakil and Steve Scherer

OTTAWA (Reuters) -Canada on Tuesday defended its decision to push ahead with its implementation of digital services taxes starting next year, citing national interest even as Finance Minister Chrystia Freeland expressed hope in reaching an international consensus.

More than 140 countries were planning to implement a 2021 deal that would overhaul decades-old rules on how governments tax multinational companies that were widely considered to be outdated as digital giants like Apple or Amazon.com can book their profits in low-tax countries.

Last week, however, most countries set to apply the first part of the deal in 2024 agreed to hold off by at least another year to reach a consensus on tax details. Ottawa refused, saying an extension of the freeze would disadvantage Canada relative to governments that have been collecting revenue under their pre-existing tax regimes.

“At this point, it is really important for us to defend our national interest and what we agreed to was a two-year pause,” Freeland told reporters in a call from New Delhi after attending G7 and G20 meetings in India.

Ottawa’s new levy would see a 3% tax on revenue earned by large technology companies in Canada.

“We support reaching an international consensus and we did have some good conversations within the G7 and bilaterally on finding a path forward where an international agreement can be reached and the Canadian interest can be protected,” Freeland said.

The process of launching such taxes has dragged on, and the governments planning national digital services taxes had agreed to put them on ice until the end of this year or drop them altogether once the first pillar of the deal takes effect in 2025 or later.

The first part of the two-pillar deal would reallocate rights of taxation on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.

Freeland said Canada was already in the process of implementing the second pillar, which calls on governments to set a global minimum corporate tax rate of 15% in 2024.

(Reporting by Ismail Shakil and Steve Scherer in OttawaAdditional reporting by David Ljunggren in OttawaEditing by Matthew Lewis and Susan Heavey)