Business, Information Technology

Canada to Start Collecting Digital Tax from U.S. Tech Giants

Canada to Start Collecting Digital Tax from U.S. Tech Giants

Canada is set to start collecting a new 3 percent “digital services tax” on foreign tech platforms like Netflix, Amazon Prime and Spotify from Jan. 2, 2022.

On Monday, the federal government said it expects to raise around $2.72 billion in revenue from the new levy over five years, beginning in 2021-22, or around $544 million annually. “The government is committed to ensuring that corporations in all sectors, including digital corporations, pay their fair share of tax on the money they earn by doing business in Canada,” the Canadian government said as it released its latest federal budget.

The Canadian feds already unveiled legislation to force foreign web giants to collect from their subscribers or customers the GST and HST, or a sales tax Canadians routinely pay on goods and services they consume. As a next step, Ottawa said it will impose the new digital services tax on foreign companies with at least 750 million euros (US$902 million) in annual revenue.

The euro threshold chosen by the Canadian government underlines its alignment with Europe where France and other EU countries have imposed or are considering a levy on tech giants, based on their global and local market revenues. Taxing web giants is separate from separate legislation introduced from Ottawa to compel online players like Netflix and Amazon Prime to contribute an unspecified portion of their local revenues to Canadian content programming.

U.S. tech giants until now have operated unregulated in Canada, unlike local broadcasters and cable players that contribute a share of their revenues to subsidize local TV production. Taxing U.S. streamers also comes as they increasingly follow the major studios in making Canada their latest home away from home as they take advantage of local incentives, curency savings, soundstages and production crews to make original productions.

As Canada gets set to close the digital services tax loophole enjoyed by U.S. tech giants, the threat of possible retaliatory tariffs from the U.S. government has Ottawa talking with officials in Washington, D.C. about a compromise agreement. “While Canada’s hope and preference is for a multilateral solution this summer, whether or not a deal is reached, Canada intends to take action,” the government said of the new tax.

Imposing a first-time levy on U.S. digital players would supersede a 2017 deal between the federal government and Netflix that required the online video giant to spend at least $400 million on Canadian film and TV investment over five years, as it established a Canadian production hub in Toronto and Vancouver.

Netflix subsequently reported it met that spending commitment three years ahead of schedule and would invest heavily on originals in Canada, while also commissioning or licensing local movies and TV series for its global network

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