Developments In Canadian Tax To Watch For In 2022

• Published date: 20 January 2022
• Subject Matter: Tax, Income Tax, Corporate Tax
• Law Firm: Torys LLP
• Author: Miss Gwen Watson, Andrew Wong and Ian Farndon

Torys Quarterly: Changing direction: Canadian business outlook 2022

Canada, like many other countries, continues to introduce and adopt various measures to strengthen tax rules, including initiatives developed by the Organisation for Economic Co-Operation and Development (OECD) as part of its base erosion and profit shifting (BEPS) plan. This article summarizes the key tax proposals that the government has announced will be adopted in Canada. Canadian taxpayers potentially impacted by these measures should monitor developments since detailed legislative proposals or consultation papers are expected to be released, although the timing of most of these releases is not clear.

Digital Services Tax and global minimum tax

On October 8, 2021, Canada was one of 136 countries that committed to Pillar One and Pillar Two of the OECD's Inclusive Framework to address tax challenges from the economy's digitalization and globalization.

Pillar One applies to certain multinational enterprises (MNEs) with global consolidated revenues above ?20 billion and profitability thresholds exceeding 10%. Pillar One establishes that 25% of the profit of such an MNE above a 10% pre-tax profit threshold is to be reallocated from the MNE's home country to the markets where the MNE earns profits (regardless of whether it has a physical presence in those markets). Pillar One is proposed to be implemented through a multilateral convention to be developed and signed by participating member jurisdictions, who agree to implement Pillar One before 2023.

A domestic Digital Services Tax would impose a 3% tax on revenue earned by large businesses from certain digital services that relay on data or content from Canadian users.

While the government has expressed its preference for the multilateral approach through Pillar One, the government released draft legislation to implement a standalone domestic Digital Services Tax (DST) on December 14, 2021. The domestic DST would impose a 3% tax on revenue earned by large businesses from certain digital services that rely on data or content from Canadian users. The domestic DST will come into force on January 1, 2024 (and apply to revenue earned from January 1, 2022 onward) if the OECD's multilateral approach to Pillar One is not in force by that date.

Pillar Two sets a global minimum corporate tax rate of 15% on profits for MNEs with revenue that meets a ?750 million threshold. Signatories to the October 8, 2021 framework, including Canada, committed to...