Explainer

 Read all about it: Canada's Digital Services Tax... and it kicks in Monday!!

What is Canada's digital services tax — and why does Trump dislike it so much? | CBC News

Copilot:

Are there currently Digital Services taxes on the books anywhere in Europe?

Yes, several European countries currently have Digital Services Taxes (DSTs) in place, even as global negotiations continue under the OECD’s “Pillar One” framework. These national DSTs are typically temporary measures aimed at taxing large digital companies—especially those earning revenue from local users without a physical presence.

🇪🇺 Countries with DSTs in Effect

Here are some notable examples:

France: A 3% DST on revenues from digital advertising, marketplaces, and data sales. It was one of the first to implement such a tax.

Italy: Imposes a 3% DST on digital services revenue earned from Italian users.

Spain: Also applies a 3% DST, targeting online advertising, intermediation services, and data transmission.

Austria: Has a DST focused specifically on digital advertising revenues.

United Kingdom: Introduced a 2% DST in 2020 on revenues from social media platforms, search engines, and online marketplaces that derive value from UK users.

These taxes generally apply only to large multinational firms that exceed certain global and domestic revenue thresholds.

🧭 Why They Exist

These DSTs were introduced because traditional tax rules didn’t capture value created by digital business models.

They’re meant to be interim solutions until a global agreement is reached under the OECD’s Pillar One, which aims to reallocate taxing rights more fairly.

⏳ What’s Next?

Although there was hope that DSTs would be phased out by mid-2024 under a global deal, delays in finalizing Pillar One have led many countries to extend or maintain their DSTs for now.

Would you like a quick comparison table of how these DSTs differ across countries?

Please...

Here’s a handy comparison of Digital Services Taxes (DSTs) currently in effect across several European countries:

                                                                 

These DSTs are gross revenue taxes, not profit-based, and are designed to capture value from user engagement in the taxing country—even without a physical presence.

Let me know if you’d like to add Canada or other non-EU countries to the mix for a global view 🌍

Could you cover Canada and others as well...

Absolutely, Louise! Let’s zoom out and look at how Canada and other countries are handling Digital Services Taxes (DSTs). Here's a comparative snapshot to give you a global perspective:

                                                                           

🔍 A Few Observations

Canada’s DST is one of the few that’s retroactive, applying from 2022. That’s a big deal—it’s expected to generate a $2B bill for U.S. tech firms this year alone.

Thresholds vary widely: India and Kenya have very low or no thresholds, while most OECD countries aim squarely at large multinationals.

Scope matters: Some countries (like Austria) narrowly target ads, while others (like Canada and Spain) cast a wider net over user data and marketplaces.

Would you like to explore how these DSTs interact with the OECD’s Pillar One framework—or how companies are responding to this patchwork of rules?

Tell me about the OECD's Pillar One framework...

Absolutely, Louise! The OECD’s Pillar One framework is part of a global effort to modernize international tax rules for the digital age—especially to address how and where large multinational companies (like tech giants) should be taxed.

Here’s a breakdown of what it’s all about:

🌐 What Is Pillar One?

Pillar One is designed to reallocate taxing rights so that countries where users and consumers are located (the “market jurisdictions”) can claim a share of the profits from large multinational enterprises (MNEs)—even if those companies have no physical presence there.

🧮 Key Components

                                                                               

🧭 Why It Matters

Traditional tax rules are based on physical presence, which doesn’t work well for digital businesses.

Pillar One aims to level the playing field by ensuring that countries where value is created (through users and markets) get a fair share of tax revenue.

It’s also meant to replace unilateral DSTs (like Canada’s or France’s), which have caused trade tensions.

🕰️ Status Update

A Multilateral Convention (MLC) to implement Pillar One was published by the OECD in October 2023.

It needs to be ratified by at least 30 countries representing 60% of the affected MNEs before it can take effect.

Progress has been slow—some countries are hesitant, and others (like Canada) are moving ahead with their own DSTs in the meantime.

Would you like to explore how Pillar One interacts with Pillar Two (the global minimum tax), or how companies are preparing for this shift?

Yes...

Great! Let’s dive into Pillar Two, the OECD’s companion to Pillar One—and arguably the more transformative of the two.

🧾 What Is Pillar Two?

Pillar Two introduces a global minimum corporate tax rate of 15% for large multinational enterprises (MNEs). The goal is to curb profit shifting to low-tax jurisdictions and ensure that big companies pay a baseline level of tax wherever they operate.

🧮 Key Features of Pillar Two

                                                                            

🧩 How It Works

Calculate ETR in each country where the MNE operates.

If ETR < 15%, a top-up tax is triggered.

That tax is collected either:

By the parent company’s country (Income Inclusion Rule), or

By other countries where the MNE operates (Under-Taxed Payments Rule).

🌍 Why It Matters

Reduces tax competition: Countries can’t lure companies with ultra-low tax rates without losing revenue.

Levels the playing field: Smaller or domestic firms aren’t disadvantaged by aggressive tax planning.

Complements Pillar One: While Pillar One reallocates taxing rights, Pillar Two ensures a minimum floor for taxation.

🕰️ Current Status

The OECD released the 2025 Consolidated Commentary in May, incorporating the latest guidance.

Over 135 jurisdictions have agreed in principle, but implementation varies.

Some countries (like the U.S.) are still debating how to align domestic law with the GloBE rules.

Would you like a visual summary comparing Pillar One and Pillar Two side by side? Or maybe a look at how Canada is implementing Pillar Two specifically?

Tell me how Canada is implementing Pillar Two...

Canada is moving full steam ahead with implementing Pillar Two, the OECD’s global minimum tax framework, through its new Global Minimum Tax Act, which received royal assent on June 20, 2024. 

Here's how it's rolling out:

🇨🇦 Canada’s Pillar Two Implementation at a Glance

                                                                           

🧾 What’s Required of Companies?

Registration: Qualifying MNEs must register for a global minimum tax account.

Filing: They’ll need to file one or more forms detailing their global and jurisdictional ETRs.

Compliance: Canada’s rules are designed to closely follow the OECD’s guidance, including safe harbors and dispute resolution mechanisms.

🧠 Why It Matters

This move positions Canada as one of the early adopters of Pillar Two, aiming to:

Protect its tax base from erosion via profit shifting.

Ensure fairness by leveling the playing field between domestic firms and global giants.

Align with global norms, while retaining sovereignty over domestic tax enforcement.

If you’d like, I can walk you through how this compares to the U.S. approach—or how companies are adapting their tax strategies in response.

What is the US approach? 

The U.S. approach to the OECD’s Pillar Two global minimum tax is… complicated. While the U.S. supports the idea in principle, it hasn’t fully aligned its domestic tax code with the OECD’s GloBE (Global Anti-Base Erosion) rules—at least not yet.

Here’s how things stand:

🇺🇸 U.S. and Pillar Two: A Hybrid Position

                                                                           

🧠 What Is GILTI?

GILTI imposes a minimum tax on foreign income of U.S. multinationals.

It was designed to discourage profit shifting to low-tax jurisdictions.

However, it calculates tax on a global average basis, not jurisdiction-by-jurisdiction like Pillar Two requires.

This means a U.S. company could pay less than 15% in one country and more in another, and still avoid a top-up tax under GILTI—something Pillar Two would not allow.

🕰️ What’s Next?

There have been proposals to reform GILTI to make it more Pillar Two–compliant (e.g., country-by-country calculations), but they’ve stalled in Congress.

The U.S. Treasury continues to engage diplomatically with the OECD and other countries, but domestic implementation remains uncertain.

So, while the U.S. has a head start with GILTI, it’s not yet playing by the full Pillar Two rulebook. If you'd like, I can show how this affects U.S. multinationals operating in countries like Canada or France that are enforcing Pillar Two.

Show me...

Here’s how U.S. multinationals are being affected by Pillar Two rules in countries like Canada and France, which are actively enforcing the global minimum tax—even though the U.S. hasn’t fully adopted the OECD framework:

🇺🇸 U.S. Multinationals Operating Abroad: What’s Happening?

                                                                            

🔁 Recent Developments

The U.S. Treasury recently reached a tentative agreement with G7 countries (including Canada and France) to exclude U.S. companies from Pillar Two top-up taxes—in exchange for dropping a proposed retaliatory tax provision in U.S. legislation.

However, this agreement only covers Pillar Two, not Digital Services Taxes (DSTs), which remain a flashpoint—especially between the U.S. and Canada.

🧠 What This Means for U.S. Companies

Without full U.S. adoption of Pillar Two, American multinationals are navigating a patchwork of foreign rules.

They may need to restructure operations, recalculate ETRs jurisdiction by jurisdiction, and prepare for compliance costs in countries enforcing the GloBE rules.

Some are even considering re-shoring holding companies or reorganizing subsidiaries to reduce exposure to UTPRs and top-up taxes.

Would you like a visual map of which countries are enforcing Pillar Two and how that overlaps with DSTs?