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Canada must go beyond OECD’s proposals to tax tech giants, parties say

Angel Gurria, general secretary of the OECD, presents the organization's annual economic outlook in Paris in May 2019
Angel Gurria, general secretary of the OECD, presents the organization's annual economic outlook in Paris in May 2019 Eric Piermont/AFP/Getty
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The OECD has proposed a historic shake-up of the global corporate taxation system in a bid to ensure Big Tech and other multinationals pay more taxes, but two of Canada’s main political parties say the measures don’t go far enough.

The proposals, unveiled Wednesday after months of negotiations, are aimed at preventing large companies from reducing their taxes by claiming profits in lower-tax countries.

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Talking Point

The OECD is proposing major changes to the way big global companies are taxed. The goal is to stop them from moving profits to lower-tax countries, and to prevent governments from unilaterally imposing their own Big Tech taxes. Two of Canada’s main political parties, however, say the measures don’t go far enough.

In Canada’s election campaign, three major political parties have proposed measures to tax the tech giants. But the OECD wants to establish a consensus among countries, rather than have them unilaterally impose their own digital taxes. “The current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world,” reads the introduction to its proposals.

The organization’s suggested system would let governments tax a to-be-determined portion of firms’ worldwide earnings, even if they do not have a physical presence in that country. It suggests applying the measure to companies with revenues of more than €750 million ($1.1 billion) that have a “sustained and significant involvement in the economy” of the country levying the tax. It’s also proposing a “legally binding” dispute-resolution mechanism to arbitrate between companies and governments.

Canada’s politicians have proposed taxes that are narrower in scope than the OECD proposals, but similar in intent. They focus on specific kinds of digital-platform revenue, unlike the OECD’s, which are based on firms’ total profits and include sectors other than technology.

In September, the Liberals promised a three per cent value-added tax on local sales of advertising and user data by firms with annual global revenues of at least $1 billion, of which $40 million or more came from Canada. The party promised to impose the tax beginning in April 2020, and to lift it once governments reach a new agreement via the OECD process. 

What happens next:

  • G20 finance ministers review the OECD proposals at a meeting in Washington, D.C. on October 17 and 18

 

  • The OECD holds public consultations on its proposals in Paris in November

 

  • The 134 countries participating in the process agree to the OECD’s approach by January 2020

 

  • The steering group for the process—whose 24 current members include a senior official in the Canadian finance department—delivers a final report by the end of 2020, which will include details on revenue thresholds, affected sectors and included business activities

On Wednesday, Liberal spokesperson Eleanore Catenaro said, “Until a consensus is reached at the OECD level on a different mechanism, we’re going to move forward with this three per cent tax to make sure that global tech giants are paying their fair share.”  

In September, Conservative leader Andrew Scheer told reporters he would ensure “foreign multibillion-dollar corporations who are collecting hundreds of millions of dollars worth of ad revenues or subscription fees out of Canada pay their fair share,” but did not provide details of how he proposed to do so. The Conservatives did not respond to a request for comment Wednesday.

The NDP proposal would require foreign digital media companies to pay the same taxes as Canadian competitors.

Mélanie Richer, NDP director of communications and media, said, “The OECD proposal includes some positive steps … but [Canada needs] more fundamental reforms,” citing the party’s proposal requiring companies to “prove the economic substance of offshore transactions.”

The Green Party platform includes a corporate tax on “transnational e-commerce companies doing business in Canada” that will require firms to “register, collect and remit taxes where the product or service is consumed.” On Monday, leader Elizabeth May said the proposal is not a sales tax, but that a Green government would apply it “further upstream to ensure that we collect … almost like a levy on [companies’] ability to do business in Canada.”

John Bennett, a Green Party information officer, said the party “[supports] the OECD proposal in principle but Canada should go farther,” noting that the Green platform calls for ad purchases on foreign-owned digital platforms like Google and Facebook to be ineligible for tax deductions, among other measures. 

Many of the firms likely to be affected by the OECD proposals are headquartered in the U.S. Seventeen of the 30 target companies of France’s digital-services tax are U.S.-based, according to KPMG. But unlike that measure, the OECD plan would also cover firms that sell products to consumers in markets other than their own through third-party distributors, meaning the tax changes would apply to luxury-brand owners like LVMH and Kering, which are both French.

The proposal specifically carves out extractive companies—meaning Canada’s mining and energy sectors would not be affected—and suggests further discussion about whether other industries like financial services should also be exempt.  

Google Canada, Facebook Canada and Netflix all said they pay applicable taxes in the countries in which they operate, in response to questions from The Logic about the OECD and party proposals. 

“This is a complex area for law and is governed by a vast network of international treaties,” said Aaron Brindle, head of public affairs at Google Canada. “That said, we agree that tax rules should be simpler and clearer.”

Erin Taylor, communications manager for Facebook Canada, said, “Tax policy should provide certainty for businesses to operate domestically and abroad. We continue to support multilateral approaches like that being undertaken at the OECD.”

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“Unlike other multinationals we invest directly in the Canadian economy,” said Netflix spokesperson Bao Nguyen, citing the company’s 2017 pledge to spend $500 million in the country over five years, a figure the streaming service said last month it had already reached. 

Amazon declined to comment on the Canadian parties’ platforms, but said it “welcomes” the OECD proposals. “Reaching broad international agreement on changes to fundamental international tax principles is critical to limit the risk of double taxation and distortive unilateral measures and to provide an environment that fosters growth in global trade,” said spokesperson Jill Shatzen Kerr.

Apple and Twitter did not respond to requests for comment.