Canada Looks to Begin Taxing Digital Economy

An April 26, 2018 report from the Canadian House of Commons Standing Committee on International Trade recommends that Canada apply sales taxes to digital products sold in the country by foreign sellers through e-commerce, and tax the profits of the companies making the sales.

The report echoes recent proposals from the OECD and the European Union to begin taxing such activities, although the types and amounts of proposed taxes vary widely.

How This Will Impact Mobility

These proposals around the world have the potential to substantially affect the tax liability of a wide range of companies doing business remotely.

The report recommends GST/HST tax on the sales themselves, and a tax on the profits of those companies making the sales. The principal evoked is that online sales and the profits companies earn from them should be taxed in the country where the products are consumed, and where the economic activities that created the profits occurred.

Online sellers would have to register in Canada to collect and remit the GST/HST taxes, although the Committee acknowledges that Canada generally would not have the ability to compel registration and collection by non-residents with no permanent establishment in Canada.

Quebec has already enacted legislation intended to accomplish a part of that goal. The Province’s new measure, which goes into effect January 1, 2019, requires that foreign e-commerce sellers collect and pay sales tax on digital services and intangible property sold in Quebec. The Committee’s report would go further, and also require collection of sales tax on sales of tangible property into Canada by means of the internet.

The Committee has asked the government to respond by September 17, 2018, and Department of Finance has said it intends to do so, although it has stated no preliminary position on the proposals. 

Worldwide ERC® members doing business in Canada should monitor these developments closely. 

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