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The federal government’s plan for a new digital-services tax on multinational corporations could generate almost a billion dollars more in revenue than expected, according to a report from Parliamentary Budget Officer Yves Giroux.

Finance Minister Chrystia Freeland announced in November that Canada is prepared to go it alone with a new digital-services tax (DST) as of Jan. 1, 2022, if no international deal is reached.

Canada is proposing a 3-per-cent tax on revenues collected from Canadian users by online companies such as Google and Facebook that have worldwide revenues of at least €750-million and Canadian revenues of more than $20-million. Ottawa has said the tax would apply to social-media companies, as well as online marketplaces and advertising services.

Ms. Freeland’s April budget restated November estimates that a DST would raise $3.4-billion over five years. Thursday’s PBO report puts the figure at $4.23-billion.

Canada and other advanced economies have been negotiating for years at the G20 and the Organization for Economic Co-operation and Development (OECD) in an attempt to craft a global approach to taxing multinational corporations.

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The April budget said “Canada has a strong preference for a multilateral approach to this issue” and that work is under way to reach a deal by mid-2021.

But “whether or not a deal is reached, Canada intends to take action,” the budget said.

The rise of the digital economy, which sees companies earning billions through the sale of intangible goods such as software and streaming services, has made it harder for governments to define where such companies should be paying taxes. The general thrust of the OECD talks is to more closely align corporate tax obligations with the location of sales, rather than the location of company headquarters, in order to curb the use of tax havens and “profit shifting” to low-tax jurisdictions.

Thursday’s PBO report cautions that its revenue forecasts involve “a high degree of uncertainty” owing to data limitations and the unpredictability of the response from companies being targeted by such a tax.

The Finance Department is currently holding public consultations on its proposal. Consultation documents say the DST “is intended to be an interim measure” that would apply “until an acceptable multilateral approach comes into effect.”

A unilateral move by Canada would likely face strong objections from the United States. U.S. Trade Representative Katherine Tai has already declared that digital-services taxes adopted by Austria, India, Italy, Spain, Turkey and the United Kingdom are “unreasonable and discriminatory.”

Earlier this month, during a meeting with Canadian Trade Minister Mary Ng, Ms. Tai expressed her concerns about Canada’s DST proposal.

Global taxation talks will resume next week when G7 finance ministers meet in London. U.S. Treasury Deputy Secretary Wally Adeyemo recently told Reuters that he expects the group will support a 15-per-cent minimum global corporate tax rate. Treasury Secretary Janet Yellen vowed earlier this year to work with other countries to end the “race to the bottom” on corporate taxation.

Canada’s proposed DST is in addition to a new federal requirement that foreign digital-services companies such as Netflix must collect and remit federal sales tax on Canadian transactions as of July 1. Ottawa has also introduced Bill C-10, which proposes to amend Canada’s broadcasting laws so that foreign streaming services such as Netflix and Amazon Prime would be required to financially contribute to the creation of Canadian cultural content.

In a separate report Thursday, the PBO attempted to assign a probability score to projections for the direction of the federal deficit and debt-to-GDP ratio. The report said there is a 70-per-cent chance the 2025-26 deficit will be between $9.3-billion and $63.1-billion. It also said there is a 70-per-cent chance the debt-to-GDP ratio for that year will be between 44 per cent and 55 per cent. It said there is a 5-per-cent chance the budget will be balanced in 2025-26.

The April budget said the deficit will decline from $354.2-billion last year to $30.7-billion in 2025-26. It also said the debt-to-GDP ratio will climb from 49 per cent last year to a peak of 51.2 per cent in the current fiscal year before falling back to 49.2 per cent in 2025-26.

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