Canada: Public consultation on draft Digital Services Tax Act closed

On 22 February 2022, the Canadian Ministry of Finance closed the public consultation on the Digital Services Tax Act. The Act would put in place the Digital Services Tax (DST), which was introduced in the 2020 Fall Economic Statement and detailed in the 2021 Budget. The DST would be imposed at a rate of 3% on certain revenue generated by major enterprises from digital services that rely on Canadian users' participation, data, and content contributions. Large enterprises, both local and international, that satisfy both of two revenue limits would be subject to the DST. The first criterion is that the taxpayer, or its consolidated group, must have earned at least €750 million in income from all sources in the preceding calendar year's fiscal year. The second criterion is that the taxpayer, or its consolidated group, generates more than $20 million in in-scope income from Canada in a calendar year. Four categories of in-scope revenue are proposed: - Online marketplace services revenue; - Online advertising services revenue; - Social media services revenue; - User data revenue. The administration declared its preference for a multilateral approach to dealing with the tax issues related to the digital economy. As a result, the DST was recommended as interim solution to be used until a more acceptable multilateral method could be implemented. 137 countries of the OECD/G20 Inclusive Framework agreed on a two-pillar strategy for international tax reform on 8 October 2021 in international negotiations. The DST would not be implemented until 1 January 2024, and only if the multinational treaty establishing the Pillar One tax regime has not yet entered into force. In this case, the DST would be due in the year it becomes effective, on sales collected on or after 1 January 2022.