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Canada's Prime Minister Justin Trudeau arrives at a news conference in Ottawa, Ontario, Canada, December 12, 2016.
Digital services tax brawl?
Last week, the Trudeau government enacted a digital services tax that has been in the works for years — and the US is ready to retaliate. The tax promises big money for the feds, with billions in revenue expected from big tech companies that earn more than CA$1.1 billion a year.
Canada had hoped to convince its peer countries in the OECD to follow suit on the same timeline — what Finance Minister Chrystia Freeland called the “multilateral solution” — but that hasn’t happened. At least not yet.
The US, which wants to wait on imposing any such tax, is threatening to respond to the policy. The country’s ambassador to Canada, David Cohen, labeled the tax “discriminatory,” and trade representative Katherine Tai is looking at options in response, which might include action under the US-Mexico-Canada Free Trade Agreement.
Canada is already staring down a 2026 USMCA review, which could prove a rocky undertaking if Donald Trump wins in November. The former president has promised a global import tariff if he’s returned to the White House, which may or may not apply to Canada. The Trump campaign hasn’t clarified the scope of the policy. In March, Tai warned Canada not to get “too comfortable” with the free-trade status quo, which might be heading for upheaval, potentially alongside some punishment for Canada’s unilateral digital services tax.
OECD logo seen on a smartphone and a computer screen.
Canada flies solo on digital services tax
‘Tis the summer for Trudeau vs. Big Tech. You’ll recall that Ottawa plans to make tech giants pay for linking to Canadian news and that the tech firms, in turn, have begun blocking access to news from the country’s outlets on their platforms.
Now, Canada is pressing ahead with a 3% digital services tax on big tech companies. The Liberals plan for the tax to come into effect on January 1, 2024 – after introducing the measure in the 2021 budget and delaying it by a year. The tax is part of an OECD plan to guarantee a 3% tax across jurisdictions that would discourage tech companies from setting up shop in one country over another to avoid paying taxes. It would also mean tech firms couldn’t bully countries into lowering taxes by threatening to leave for somewhere cheaper. But most of the 140+ countries involved, including the US, are not prepared to launch the measure. At least not yet.
There’s lagging support for it in the US Congress, and with Biden facing reelection, ratification of the tax could be politically costly. Washington has asked the OECD to delay implementation, and the organization has pushed the adoption of this measure to 2024. But Canada says it’s not going to wait. Washington is pushing Ottawa to relent, and both the US and Canadian business communities are warning of the risks of a unilateral move, such as trade retaliation from the US and, potentially, other countries – not to mention threats from tech companies themselves.
But Canadian Finance Minister Chyrstia Freeland, unmoved by the warnings, says the tax is in the national interest and that “Canada’s position is unchanged.” Question is, can the US or OECD get her to change her mind before winter?An Uber taxi driver sits in his car in Nairobi, Kenya.
Uganda joins movement to tax Big Tech in Africa
Uganda’s parliament just passed a tax on foreign digital service providers, joining the growing number of African governments trying to recoup some of the massive revenues tech giants are generating within their borders.
The 5% levy would apply to companies like Meta, Amazon, Uber, Google, and other tech firms that pay minimum taxes to African nations because they don’t have headquarters on the continent. Uganda’s finance minister highlighted Uber — domestic drivers generate profits that go to Silicon Valley rather than the Great Rift Valley — as the main reason the tax was necessary.
The same argument could apply to the billions of dollars generated from the data of Africa’s 570 million-and-counting internet users. Nigeria, Kenya, and Tanzania have implemented similar levies on digital services.
But the Ugandan opposition fears that companies could push the costs of taxes onto locals that rely on digital platforms, from Uber drivers to content creators. Kenya, which implemented a 1.5% levy on digital services last year, is facing protests after proposing an additional 15% tax on content creators.
In 2021, the OECD began leading negotiations on a global digital tax, which has so far been stymied by the US, which is home to many of the companies that would be directly affected. The OECD argues that a digital tax is needed to revamp brick-and-mortar tax rules for the modern global economy, making companies pay taxes where they have customers or users, rather than just where they are headquartered.