On August 4, 2023 the Canadian Government has opened consultations on several Budget 2023 measures to grow the clean economy, close tax loopholes, and deliver tax relief for Canadians. Two of the measures on which the Canadian Government opened a consultation are draft legislation to implement a Global Minimum Tax (Pillar Two) and draft legislation introducing a Digital Services Tax.
Draft legislation to implement a Global Minimum Tax (Pillar Two)
With respect to the draft legislation it released the Canadian Government stated that it will be updated as necessary to reflect elements of the administrative guidance (including on the treatment of transferable and other tax credits) released this summer by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting that are not already included in legislative proposals.
The consultation regarding the draft legislation to implement Global Minimum Tax (Pillar Two) will remain open until September 29, 2023.
In PART II the draft legislation as released by the Canadian Government contains provisions regarding the Income Inclusion Rule (IIR) or Global Minimum Tax as the Canadian Government calls it. In PART IV the draft legislation as released by the Canadian Government contains provisions regarding Domestic Minimum Top-up Tax (DMTT). The draft legislation as released by the Canadian Government also contains a PART III titled UTPR, but this section is left blank and does not contain any provisions (yet?) regarding an Undertaxed Payments Rule.
The Canadian Government intends the legislation to implement Global Minimum Tax (Pillar Two) to apply to fiscal years of a qualifying MNE group that begin on or after December 31, 2023
The draft legislation to implement a Global Minimum Tax that the Canadian Government released on August 4, 2028 can be found here.
Next to the draft legislation the Canadian Government also released a Table of Concordance. This Table is very handy since cross-references certain provisions of the proposed Global Minimum Tax Act (the “Act”) with the source documents on which they are based, being the provisions ofthe GloBE model rules, the GloBE commentary, the administrative guidance in respect of the GloBE model rules, the GloBE Information Return and the GloBE Safe Harbours and Penalty Relief document, all as approved by the Inclusive Framework and published by the OECD.
Draft legislation introducing a Digital Services Tax
Some might be surprised to find out that the Canadian Government released revised draft legislation introducing a Digital Services Tax. It should however be noted that Canada was not one of the 138 signatories to the Outcome Statement as released on July 11, 2023 by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
Submission for the consultation regarding the draft legislation introducing a Digital Services Tax should be submitted by September 8, 2023. (NB Please be aware that the consultation period is shorther than the consultation regarding the draft legislation to implement a Global Minimum Tax (Pillar Two))
The Act would impose a tax of 3% on revenues derived by residents and non-residents of Canada from certain digital services they provide. The targeted revenues are generally those that arise in connection with the digital service providers' engagement with online users in Canada. These revenues include certain revenue relating to online marketplaces, online targeted advertising, social media platforms and the sale or licensing of user data. The tax is aimed at large businesses with annual revenues of €750,000,000 or more and Canadian digital services revenue (as defined in the legislation) of more than $20,000,000.
The Digital Service Tax Act will come into force on a day to be fixed by order of the Governor in Council, but not earlier than January 1, 2024. The tax will apply on a calendar year basis, beginning with the year that includes the day that the Digital Service Tax Act comes into force. For the first year that the tax applies, tax liability will be calculated by reference to certain Canadian digital services revenue earned from January 1, 2022, up to and including that first year.
The revised draft legislation introducing a Digital Services Tax as released by the Canadian Government on August 4, 2023 can be found here.
The Explanatory Notes for the Draft Digital Services Tax Act and Related Regulations as released by the Canadian Government can be found here.
Submissions for both consultations are to be submitted via e-mail to: ling This email address is being protected from spambots. You need JavaScript enabled to view it..
Information regarding the other tax items for which the Canadian Government opened public consultations on August 4, 2023 can be found here.
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