Question Period Note: Tax treatment of digital platforms

• We are committed to making sure that all companies operating digital platforms pay corporate tax in respect of their Canadian activities.
• As one means to this end, Canada is actively participating in a multilateral process led by the OECD to update international norms on corporate income tax to reflect new digital business models.
• The aim is to achieve consensus by the end of 2020. Canada is committed to the success of this process.
• That being said, Canada will continue to consider all options to achieve an equitable outcome.
• In addition, to ensure a level playing field between Canadian and foreign firms, we are committed to ensuring that international digital corporations that do business in Canada collect and remit the appropriate sales taxes.

Corporate Income Tax
• Canada is actively participating in multilateral discussions coordinated by the Organization for Economic Cooperation and Development (OECD) on whether new digital business models and other economic developments require changes to the international rules for coordinating corporate income taxes on multinational companies.
• The 135 countries that are members of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), including Canada, have agreed to work collectively to develop consensus by 2020 on a long-term, principles-based approach.
• With a view to developing such a consensus, the Inclusive Framework agreed in May 2019 to pursue a joint Programme of Work, which was endorsed by G20 Leaders in June 2019.
• Meanwhile, a number of countries have implemented or announced plans to proceed unilaterally with Digital Services Taxes (DSTs), without waiting for consensus. The U.S. has voiced strong opposition to unilateral DSTs and is investigating whether to take trade action in response to France’s DST.
• The 2019 Liberal Party of Canada platform proposed to “make sure that multinational tech giants pay corporate income tax on the revenue they generate in Canada”. Further details released in the Parliamentary Budget Officer costing suggested the proposal is a 3% tax on gross corporate revenue from targeted advertising and digital intermediation, replicating the DST in France.
Application of GST to Internet Sales
• Goods and services purchased by Canadians over the internet for use in Canada are generally subject to the GST.
o Both Canadian and foreign businesses with a physical presence in Canada are required to register, collect and remit GST on their internet sales.
o However, foreign companies that have no presence in Canada are generally not required to register, collect and remit the GST on their internet sales to Canadians.
o Canadians who make online purchases of physical goods from non-resident, non-registered vendors pay tax at the border when the goods are imported.
o Canadians who purchase digital products and services (e.g., downloaded or streamed movies, music) from non-resident, non-registered vendors are presently required to self-assess the GST on their purchases and remit these amounts to the CRA. Few consumers respect the self-assessment requirement, and some Canadian companies have raised concerns about the resulting inequities.
• Consistent with the OECD’s recommendations for value-added taxes (such as the GST) on cross-border digital supplies, numerous jurisdictions (e.g., Australia, New Zealand, the European Union, Quebec) require foreign vendors of digital products and services to collect and remit the VAT/GST on sales to consumers in the jurisdiction of the consumer.

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