According to a new report from the Parliamentary Budget Office (PBO), a proposed three percent tax on digital services for large multinational tech companies could generate more than $ 4 billion in its first five years.
The federal government has presented a plan in its 2021 budget for a 3% tax on digital service companies with global revenues of $ 1.1 billion and Canadian revenues of over $ 20 million.
The tax would enter into force on January 1, 2022, but only if a multilateral plan for the international taxation of digital services currently under discussion at the Organization for Economic Co-operation and Development does not materialize before that date.
It would apply to online marketplaces, social media, online advertising services, user data sales, and licensing services. This would cover goods and services like Spotify and Netflix, since the government currently does not collect GST on sales of these platforms.
The measure was first proposed in the fall economic statement, and a more specific plan has again been included in the 2021 budget. last report updates a Jan. 28 analysis to clarify which businesses would be subject to the tax, as it appears in the budget.
The tax would increase by $ 190 million in fiscal year 2021-2022, rising to $ 1.2 billion by 2025-2026. It would generate $ 4.2 billion in its first five years, according to the PBO, which is more than what the budget estimated: $ 200 million generated in 2021-2022, before rising to $ 900 million in 2025-2026, for a total of $ 3.4 billion.
In its analysis, the PBO used the 2019 and 2020 financial statements of public companies that met the budget threshold. Its future projections were based on an average growth rate of 12 percent in the relevant technology sectors.
The PBO also warned that his estimates should be taken with a grain of salt.
Estimating the exact tax base “involves a high degree of uncertainty,” the report says, due to the lack of information in the financial statements of companies used by the PBO and the volatility of revenue growth in the country. the technology sector.
Since 2016, the federal government has required companies with global revenues exceeding $ 1.1 billion to file reports to the Canada Revenue Agency that provide country-by-country figures on income and taxes paid, among other information. . However, the PBO does not have access to this data.
As a result, “the estimate of the share of revenue generated in Canada that is subject to this tax is based on sound assumptions,” the report says.
Businesses subject to the tax will also likely adjust their practices in response to the law, the report says. Finally, the analysis did not take into account the administrative costs of monitoring transactions, as the necessary data is not currently collected.
The budget indicated that the government had a “strong preference” for an international agreement. After a call with US Treasury Secretary Janet Yellen in January, German Finance Minister Olaf Scholz said he believed a multinational digital services tax deal was “highly likely.” The United States withdrew from multilateral talks in the summer of 2020 after then-President Donald Trump sought refuge for some American companies.
Several European countries have implemented or proposed a tax on digital services. Taxes differ in the services covered and the actual rates, which range from 1.5 percent in Poland to 7.5 percent in Turkey and Hungary.
Most use the same threshold of $ 1.1 billion (equivalent to 750 million euros) proposed in the federal budget, although the domestic revenue thresholds vary from a minimum of 3 million euros (4.4 million) to a maximum of 25 million euros ($ 36.8). million).
Ottawa is seeking input from experts, stakeholders and the public on the digital services tax. The consultation period runs until June 18.
This story has been revised after publication.