Canada Releases Recommendations on Taxation of Digital Economy
On April 26, 2018, Canada’s House of Commons released a Report of the Standing Committee on International Trade, E-Commerce: Certain Trade-Related Priorities of Canada’s Firms. The report includes recommendations for consideration by the House of Commons. These recommendations encourage the Canadian government to ensure fair taxation in the digital economy, as well as contribute to the success of Canadian firms.
Recommendations include the following:
- Work with other countries to ensure that online sales, and the profits earned by firms, are taxed in the country where the products are consumed and where the economic activities that created the income occur, as consistent with BEPS Action 1. According to the Action 1 final report, “The current tax rules for allocating income among different parts of the same MNE require an analysis of functions performed, assets used, and risks assumed. This raises questions in relation to some digital economy business models where part of the value creation may lie in the contributions of users or customers in a jurisdiction…. the increased importance of users/customers therefore relates to the core question of how to determine where economic activities are carried out and value is created for income tax purposes.”
- Adopt policies designed to promote competitive taxation in e-commerce and encourage Canadian entrepreneurs.
- Apply sales taxes on the sale of tangible and intangible products in Canada by domestic firms and foreign sellers, including on sales through an e-commerce platform.
- Increase Canadians’ trust in e-commerce platforms, including through enhanced cybersecurity measures. Ensure that federal legislation and regulations protect the personal data of Canadians who purchase and sell products online.