Canada’s Plan For Digital Services Tax: Is It Going To Hamper The Business Environment?
International Tax Consultants in Toronto have been busy answering the queries related to digital services tax off late. First announced in the Fall Economic Statement of 2020 and further details furnished in Budget 2021, the Digital Services Tax act has now been implemented pan Canada. To address certain challenges arising from the digital economy, 137 members of the OECD/G20 Inclusive Framework have agreed upon a new set of tax-paying policies under GLoBE rules.
Now, the question is why DST has emerged to be so important? Corporate tax consultants in Toronto describe the DST act as a solution to revenue versus tax disputes for online businesses. Putting things simply, we have seen a surge in online merchandising in the recent past which involves shipping products abroad. This along with digitalized economy has made the prevailing tax-paying system fall short in certain cases. Thus, DST would be applicable on certain earned by MNCs or large businesses at a rate of 3%. And here is the catch!
People tend to think that this 3% tax on the revenue could actually hamper the business environment. Before you jump to a conclusion, kindly go through what top Canadian tax consulting service providers are conjecturing.
Implementation of Digital Service Tax
DST will be applicable to large businesses that meet two revenue thresholds set by the Canadian government. The thresholds are:
Total Revenue Threshold
If a company earns revenue over EUR 750 million in a fiscal year, it meets the total revenue threshold for the subsequent fiscal year. If an organization joins a group and the group has annual revenue of over EUR 750 million, then the merging company would meet the criteria as a taxpaying entity.
Canadian In-Scope Revenue Threshold
An organization or taxpayer will be eligible for this threshold if the annual revenue generated is greater than 20 million dollars of Canadian in-scope revenue. The rule stays the same for the group of companies as well.
The four categories of Canadian in-scope revenue as proposed are:
- Digital marketplace services revenue
- Digital advertising services revenue
- Social media services revenue
- User data revenue
The DST would be applicable to in-scope revenue related to users within Canada.
If you are looking forward to simplifying your tax filing and related services, get in touch with the international tax consultancy service in Toronto. They will guide you with the help of experts.
