The push for a tax on Big Tech has stalled, with France hitting the pause button on its digital-services tax and Canada taking a wait-and-negotiate stance.
France introduced a digital-services tax last summer, projected to raise close to $1-billion in revenue this fiscal year from international technology companies such as Alphabet Inc. and Amazon Inc., Facebook Inc. and Apple Inc.
The Liberals proposed their own version of that tax during the fall election campaign, with the Parliamentary Budget Office saying the tax would start on April 1 of this year, and raise $540-million in revenue for Ottawa in the coming fiscal year.
Both measures levy a 3-per-cent tax on a company’s revenue from certain digital services, rather than profits, with the aim of capturing income that currently flows to the United States, where most large digital technology firms are headquartered.
The backlash from the United States has been fierce, with the Trump administration threatening steep tariffs on French goods. On Monday, France and the United States struck a truce in that dispute, agreeing to pursue multilateral negotiations on digital taxation within the Organization for Economic Co-operation and Development (OECD). French President Emmanuel Macron said he had had a “great discussion” with U.S. President Donald Trump and that the two countries would work together to avoid an increase in tariffs. On Tuesday, Reuters reported that France will suspend payments due in April for this year’s digital tax, citing unnamed French sources.
In Canada, the federal Liberals are not backing away from their intention to implement a digital-services tax that will require international digital companies to pay a levy on the revenue they generate in this country. But the government is no longer talking about an April 1 target. Instead, Prime Minister Justin Trudeau has said his government would wait for the OECD report on digital taxation, due this summer, telling Radio-Canada last month that France had moved “too far, too quickly.”
Ottawa’s proposed tax would apply to companies with more than $1-billion in global sales and $40-million in Canadian sales, but the 3-per-cent levy would only be charged on revenue generated in Canada.
University of Ottawa professor Michael Geist said the OECD is the right venue to hash out the digital-taxation issue, but that a consensus is unlikely to emerge before the end of the year. That means the Liberals’ digital-services tax will be delayed for months, he said. “They are effectively punting on a tech tax.”
Ottawa had little choice but to delay its digital-services tax, given the opposition of the United States, said Dan Ujczo, chair of the U.S.-Canada practice group at law firm Dickinson Wright LLP. “In my opinion, Canada is reading the tea leaves,” he said.
Indeed, U.S. Treasury Secretary Steven Mnuchin issued a warning to Britain and Italy on Tuesday, telling the Wall Street Journal that the Trump administration would impose tariffs on those countries if they proceeded with a digital-services tax.
Mr. Ujczo said the pending ratification of the United States-Mexico-Canada Agreement is another factor, since introducing a tax aimed at large U.S. companies is at odds with pushing for Mr. Trump to sign the free-trade pact.
A separate proposal from Ottawa to ensure that foreign digital service companies pay the same sales taxes as Canadian companies has not sparked similar concerns from the United States and is likely to proceed, Mr. Ujczo said.
French Finance Minister Bruno Le Maire said he will discuss a possible “definitive” deal with Mr. Mnuchin on Wednesday at the World Economic Forum in Davos, Switzerland. He said France will continue to push for a minimum level of taxation on digital companies. Even with the tariffs truce with the United States “a difficult negotiation” remains, Mr. Le Maire said in Brussels, speaking ahead of a meeting of European Union finance ministers where the group’s stance on digital taxation was to be discussed.
With reports from Reuters