Canada introduced Digital Service Tax despite commitment to OECD’s Pillar approach

News, dated 23-12-2021

The Canadian Government has introduced a draft plan to implement Digital Service Tax (DST) on December 14, 2021. The DST will be implemented only if Pillar One of the OECD tax deal isn’t implemented by 2024. Canada’s digital service tax would apply @ 3% on large businesses earning revenue from specific digital platforms like online marketplaces, social media, online advertising, and user data.

It is interesting to note that in October 2021, the Organisation for Economic Co-operation and Development (OECD) announced that 136 countries, including Canada, had committed to a two-pillar package to ensure that large MNEs ‘pay tax they operate and earn profits. OECD stated that signatory countries agree not to impose any newly enacted DSTs from October 8, 2021, until the earlier of December 31, 2023, or the coming into force of a Pillar One multilateral convention.

Thus, the US claims that Canada’s DST legislation violates the terms of the OECD Agreement, which directly affects the business with the US. Google, too expressed its disappointment and stated that the move of Canada would undermine the multilateral consensus and raise prices for Canadians.

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