Canada’s new digital services tax could lead to higher subscription fees

Experts warn that Canada's newly enacted digital tax on foreign companies will likely result in retaliation from the U.S.

Canada has officially enacted its controversial Digital Services Tax (DST).

Under this legislation, foreign companies that provide digital services to Canadians or sell Canadian data will be subject to a three percent levy on revenue made from Canadians. This will apply to “large businesses” that reach multiple revenue thresholds, including tech giants like Amazon, Apple and Uber, and will be retroactive to January 1st, 2022.

“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 federal government said in its original 2021 proposal of the DST. The government expects the tax to bring in $5.9 billion over five years, starting in 2024-25.

The DST was initially spurred by negotiations over a global tax accord between Canada, the U.S. and other countries. The Trudeau government said it would sign the accord with the stipulation that it was implemented at the start of 2024, and now that this hasn’t happened, it’s moving forward with the DST. In April, Canada said it had already delayed the implementation of the DST for two years and “cannot afford to wait.”

Speaking in Milton, Ontario this week, Deputy Prime Minister and Finance Minister of Canada Chrystia Freeland added that while Canada prefers a “multilateral solution” to taxation, “it’s simply not reasonable, not fair, for Canada to indefinitely put our own measures on hold.” She added that nations like the U.K., Spain, Italy and France have had a DST in place for years now without retaliation from the U.S.

However, the Biden administration, for its part, has said it will “do what’s necessary” to block the DST. Experts have also warned that the DST will likely trigger some form of trade retaliation from U.S., with Digital Media Association, a Washington-based audio streamer lobbying group, suggesting that companies might respond with increased streaming subscription prices for Canadians. Meanwhile, groups like the Canadian Taxpayers Association and the Canadian Chamber of Commerce have called on the Canadian government to scrap the tax.

The enactment of the Digital Services Tax comes one month after the federal government ordered foreign streamers like Netflix and Spotify to contribute five percent of their Canadian revenue to Canadian content and news.

Image credit: Shutterstock

Via: The Wall Street Journal

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