Submissions August 17, 2023

Concerns over Canada’s Digital Services Tax

Goldy Hyder – President and Chief Executive Officer, Business Council of Canada

Economic Strategy North America Regulation Taxation

Submission to The Honourable Chrystia Freeland, P.C., M.P., Deputy Prime Minister and Minister of Finance in response to the government’s consultations regarding the draft Digital Services Tax Act.

Dear Deputy Prime Minister,

Please accept this letter as the Business Council of Canada’s submissions in response to the government’s consultations regarding the draft Digital Services Tax Act. Given the Council’s primary concerns about Canada’s unilateral imposition of a DST are based on trade priorities not tax policy, our comments do not seek to address any of the technical aspects of the draft legislation only the coming into force provisions.

The BCC would have been forced to oppose the introduction of the draft Digital Services Tax Act if it had the legal effect of requiring the government to impose the tax on January 1, 2024. Yet, our reading of s.123(2) – the second subsection (2) in bold type found in the Legislative and Regulatory Proposals Relating to the Digital Services Tax Act consultation document – is the Act would not have that legal effect.

This second s.123(2) of the draft Act says regulations will come into force “on the day that is fixed by order of the Governor in Council, but not earlier than January 1, 2024.” We note this language differs from that found in other draft legislation, also the subject of ongoing departmental consultations, which states those other acts or regulations shall “come into force or is deemed to come into force on January 1, 2024.”

In addition, s.123(2)also requires that in fixing the date for the coming into force the government must consider the intent of the Organization for Economic Co-operation and Development (OECD) statement in support of a two-pillar solution to address tax challenges arising from the digitization of the economy; Canada’s preference for a multilateral approach; and the status of the international negotiations.

Our interpretation of s.123(2), then, is the government is expressly preserving the option of deferring the imposition of any DST until a date after 2024, which would be consistent with what was agreed to by the vast majority of OECD countries earlier this summer. If this interpretation is correct, we support the government’s chosen direction as we urge you to defer imposing a DST pending the ongoing OECD negotiations.

As we have written to you previously, we are concerned Canada’s unilateral imposition of a DST in 2024 would undermine our vitally important bilateral trade relationship with the United States. The Biden Administration has made clear, with the support of leading Democrats and Republicans in Congress, that if your government does so it would leave them “no choice but to take retaliatory measures in the trade context.”

Any retaliatory trade action would severely harm our national interests.

Yours very truly,