Freeland reports ‘constructive’ digital services tax talks at G20 meetings in India

Open this photo in gallery:

Finance Minister Chrystia Freeland said she’s hopeful an international agreement on a digital services tax can be reached following constructive talks at G20 meetings in India, but Canada is not ruling out the possibility of going at it alone on Jan. 1.

Canada was largely isolated in Organization for Economic Co-operation and Development (OECD) talks in Paris last week after members agreed to another delay in the adoption of a digital services tax (DST).

The Liberal government has been holding off on plans to bring in its own DST in the hope of being able to move in tandem with the international community.

An earlier federal deadline to bring in a 3-per-cent tax on revenues collected from Canadian users by large online providers such as Alphabet Inc.’s Google and Meta Platforms Inc.’s Facebook had already been pushed back from Jan. 1, 2022, to Jan. 1, 2024.

Last week’s OECD meetings ended without a firm new timeline for implementing a DST, though talks are expected to continue throughout the year.

Ms. Freeland said last week in writing that Ottawa “cannot support the extended standstill,” suggesting that plans for the new Canadian tax will go ahead.

Since then, Ms. Freeland has had the chance to meet individually and in groups with many of her counterparts at a gathering of G7 and G20 finance ministers, as well as central bankers, in Gandhinagar, India. She described those meetings as “very constructive.”

The minister’s discussions included a meeting with U.S. Treasury Secretary Janet Yellen. The United States has strongly advocated for an international consensus on global tax matters, especially given that many of the large digital companies targeted by the DST are U.S.-based.

Speaking with reporters on a conference call Tuesday at the end of those meetings, Ms. Freeland said she’s hopeful a global deal can be reached.

“At this point, it is really important for us to defend our national interest,” she said. “Having said that, we support reaching an international consensus and we did have some good conversations within the G7 and bilaterally on finding a path forward where international agreement can be reached and the Canadian interest can be protected and recognized.”

The DST is one of several efforts by the Liberal government to force global tech giants to pay more in taxes and other contributions in Canada. Parliament approved the government’s Bill C-11 in April, which requires large online streaming platforms to contribute financially toward Canadian content creation.

Then in June, Parliament approved Bill C-18, the Online News Act, which aims to encourage Google, Facebook and other platforms to reach content licensing deals with Canadian news organizations.

Consultations are now under way with respect to the regulatory details as to how those two laws will be implemented.

As originally proposed, the Canadian DST would only apply to companies with more than $20-million in Canadian revenues and worldwide revenues that exceed $1.1-billion.

A 2021 analysis by the Parliamentary Budget Officer estimated that the tax would raise over $1-billion a year in new revenue.

However, business lobby groups in Canada and the U.S. warned the Canadian government last week that acting unilaterally will invite trade headaches.

The U.S. Chamber of Commerce and the Business Council of Canada have both called on Ms. Freeland to publicly shelve the Jan. 1, 2024, timeline.

The U.S. Chamber of Commerce warned that a unilateral Canadian DST would contravene Canada’s obligations under both the United States-Mexico-Canada Agreement on free trade and the World Trade Organization.

“It’s for this reason that the prospect of unilateral Canadian DST action has elicited staunch bipartisan opposition in the U.S. Congress and warnings of retaliatory measures from the Biden administration,” Watson McLeish, senior vice-president for tax policy at the U.S. Chamber of Commerce, said in a statement last week.

In her comments Tuesday, Ms. Freeland played down any sense of tension between Canada and its allies.

“Our partners understand our approach,” said Ms. Freeland on Tuesday. “They understand the reasons why Canada is taking this position. And I really have hope that it will be possible to find a solution that will preserve Canada’s national interests and also allow the international agreement to move ahead.”

With a report from Reuters