3% DST will be collected if no agreement on OECD tax reforms
Canada has given royal assent on 20th June 2024 and order in council on 28 June to legislation (Bill C-59) for the introduction of a 3% Digital Services Tax (DST) on large companies. It applies retrospectively for in-scope income from 1 January 2022 onwards.
In-scope businesses will have to register with the Canada Revenue Agency (CRA) by 31 January 2025, and file their first DST return and pay any related taxes by 30 June 30 2025. However, should there be agreement on the Pillar 1 of the OECD talks any taxes may be offset.
The new tax on large companies’ income from data and content contribution by Canadian users including digital advertising, online marketplaces, social media and the sale/licensing of user data.
The thresholds for having to start collecting the taxes would be:
- Global revenues above €750m as per the OECD’s model; and
- Canadian revenues above CAD20m
US object to ‘discriminatory’ Digital Services Taxes
The US has been very critical of this tax as it targets many of its resident digital multinationals. The looming collection of DST’s threatens trade retaliation from the US who view the tax as discriminatory. France, Italy, Spain, the UK and others have gone ahead with their versions of DST’s.
Canada was one of the few countries to decline freezing the introduction of its proposed DST following the recent agreement to a 1-year freeze pending a successful Pillar 1 of the OECD talks. 138 countries agreed to the pause; only five, including Canada declined. Canada had indicated that it would not proceed with the tax if Pillar 1 talks reached a successful conclusion by 31 December 2023. But this is still outstanding.
The U.S. Computer and Communications Industry Association, which represents big tech companies such as Amazon, Apple and Uber, wrote to U.S. President Joe Biden asking his administration to initiate formal dispute settlement procedures under the United States-Mexico-Canada Agreement (USMCA).
This comes as Canada imposed 5% GST on digital services sales to consumers from 1 January 2021. Check VAT Calc’s Global Digital Services Tax Tracker to see which other countries have proposed and implemented such tax.
Americas Digital Services Taxes (DST)
| Country | Status | Rate | Annual sales threshold | Scope | |
| In-country income | Global income | ||||
| Argentina | Dec 2020 | 5%, 10%, 15% | Online gambling | ||
| Brazil - 1 | Proposed | 1-5% | BRL 100m | BRL 3bn | Advertising; user data; interfaces; |
| Brazil - 2 | Proposed | 3% on COFINS | BRL 78m | $240m | Advertising; platform services for selling goods and services |
| Brazil - 3 | Proposed | 3% | BRL 4.5bn | Advertising; platform interaction services; data | |
| Brazil - 4 | Proposed | 3% - 10% | BRL 100m | Media; apps; gaming; gambling (10%); software | |
| Brazil - 5 | Proposed | 3% | Advertising; user data; payment platforms; media | ||
| Canada | Jan 2024 | 3% | CAD 20m | €750m | Advertising, online marketplaces, social media and the sale/licensing of user data. |
| Colombia | 2023 | 3% | US$ 264k | - | Advertising; streaming or download media; user data; e-learning - Significant Economic Presence test |
| Costa Rica | Nov 2019 | Tourist accommodation rentals | |||
| Paraguay | Jan 2021 | 4.5% | Non-resident: media; gaming; data processing; advertising; gambling; software | ||
| Uruguay | Jan 2018 | 12% | Digital services Non-residents | ||
