Order Fixing the Day on Which This Order Is Made as the Day on Which Subsection 96(1) of the Fall Economic Statement Implementation Act, 2023 Comes into Force: SI/2024-33

Canada Gazette, Part II, Volume 158, Number 15

Registration
SI/2024-33 July 17, 2024

FALL ECONOMIC STATEMENT IMPLEMENTATION ACT, 2023

Order Fixing the Day on Which This Order Is Made as the Day on Which Subsection 96(1) of the Fall Economic Statement Implementation Act, 2023 Comes into Force

P.C. 2024-856 June 28, 2024

Whereas, under subsection 96(2) of the Fall Economic Statement Implementation Act, 2023, chapter 15 of the Statutes of Canada, 2024, the Governor in Council has considered the intent of the October 8, 2021 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy and Canada’s preference for a multilateral approach to addressing the tax challenges arising from the digitalization of the economy and the status of international negotiations and implementation in respect of such an approach;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, under subsection 96(2) of that Act, fixes the day on which this Order is made as the day on which subsection 96(1) of that Act comes into force.

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

This Order, made pursuant to subsection 96(2) of the Fall Economic Statement Implementation Act, 2023, fixes the day that this Order is made as the day that subsection 96(1) of the same Act comes into force, enacting the Digital Services Tax Act.

Objective

The objective of this Order is to bring into force the Digital Services Tax Act (DSTA) and its related regulations.

Background

Canada first announced plans to implement a Digital Services Tax (DST) in the 2020 Fall Economic Statement on November 30, 2020. The DST was announced as an interim measure that would have effect from January 1, 2022, until the effective date of an acceptable internationally negotiated multilateral approach to tax and digitalization.

On October 8, 2021, Canada and 136 other members of the Organisation for Economic Co-operation and Development and G20 (OECD/G20) Inclusive Framework agreed to a Statement on a two-pillar plan for international tax reform (the October Statement). Pillar One of the plan would ensure that the largest and most profitable global corporations, including large digital corporations, pay their fair share of tax in the jurisdictions where their users and customers are located. Pillar Two of the plan would ensure that large multinational corporations are subject to a minimum effective tax rate of 15% on their profits wherever they do business. The October Statement included a standstill commitment not to impose any new DSTs before 2024, but it allowed pre-existing DSTs to continue. Concurrently, the Government announced that the DST would be imposed as of January 1, 2024, if the treaty implementing Pillar One of the plan had not come into force. In that event, the DST would be payable as of 2024 in respect of revenues earned as of January 1, 2022.

On November 30, 2023, given the absence of a binding timeline for the implementation of Pillar One, the Government introduced the DSTA in the Fall Economic Statement Implementation Act, 2023, which received royal assent on June 20, 2024. Subsection 96(2) of the Fall Economic Statement Implementation Act, 2023 provides that the DSTA comes into force on the day that is fixed by order of the Governor in Council, but not earlier than January 1, 2024. In fixing that day, the Governor in Council must consider

The Government reaffirms its commitment to Pillar One and will continue to work with international partners to bring the new system into effect as soon as a critical mass of countries (as defined in the treaty) is willing. However, since implementation is uncertain and, in any event, will still require several years, the Government cannot continue to defer action and is moving forward with the DSTA.

Section 2 of the DSTA provides that the first year of application of the DST is the calendar year that includes the day on which the DSTA comes into force — i.e. the day on which the Order is made. Under subsection 10(2) of the DSTA, DST for this first year would cover in-scope revenues earned since January 1, 2022.

Implications

The DSTA would impose a tax of 3% on revenues from providing certain digital services. Businesses (both residents and non-residents of Canada) that meet certain revenue thresholds would be subject to the tax. The targeted revenues arise in connection with digital services that rely on data and content contributions from online users in Canada. The main categories of revenues relate to

  1. online targeted advertising (where the targeting uses information collected from online users — e.g. based on their use of a search engine or interaction with a website);
  2. online marketplaces (e.g. where goods and services of third-party suppliers are sold, such as household goods, restaurant meals for delivery, taxi rides, hotel rooms, airline flights, etc.);
  3. social media platforms (e.g. where users pay a fee for access); and
  4. the sale or licensing of data gathered from users of certain online platforms.

The DST is expected to raise $2.3 billion in tax revenue in 2024–2025 (reflecting revenues from the 2022, 2023 and 2024 taxation years) and $900 million annually thereafter.

For administration, Budget 2021 allocated $24 million over two years for initial start-up costs and $4 million per year ongoing.

Consultation

There were three public consultations regarding the DST:

  1. a consultation on a proposed approach to implementing the DST, as outlined in Budget 2021, released on April 19, 2021;
  2. a consultation on draft legislative proposals released on December 14, 2021; and
  3. a consultation on updated draft legislative proposals released on August 4, 2023.

Consultation submissions were received from a range of stakeholders and their feedback was taken into consideration in developing the DSTA.

Contact

Ingrid De Freitas
Director
International Inbound Investment
Tax Legislation Division
Tax Policy Branch
Department of Finance Canada
Telephone: 343‑543‑9742
Email: Ingrid.DeFreitas@fin.gc.ca