Asked Copilot about taxing American Companies:
Do American multinationals pay taxes in Canada?
Yes, American multinationals do pay taxes in Canada—but how much and on what depends on a few key factors.
🇨🇦 Here’s how it works:
- Permanent Establishment Rule: Under the Canada–U.S. Tax Treaty, Canada can tax a U.S. company’s profits only if it has a “permanent establishment” in Canada—like a branch office, factory, or long-term construction site.
- Business Profits: If a U.S. multinational earns income through Canadian operations tied to that permanent establishment, those profits are taxable in Canada.
- Withholding Taxes: Even without a permanent base, Canada may still tax certain types of income paid to U.S. companies—like dividends, interest, and royalties—through withholding taxes. The treaty often reduces these rates to avoid double taxation.
- Double Taxation Relief: To prevent being taxed twice, the treaty allows U.S. companies to claim foreign tax credits for taxes paid in Canada when filing their U.S. returns.
So, while they don’t pay Canadian taxes on all their global income, American multinationals do contribute to Canada’s tax base when they operate or earn income here. Want to dive into a real-world example or explore how this affects Canadian subsidiaries?
The links to the actual Treaty in Canada, and the US respectively:
https://www.irs.gov/businesses/international-businesses/canada-tax-treaty-documents
So a company like Amazon - which is everywhere in Canada - would be taxed quite normally??
Great question, Louise—and the answer is a bit layered. Amazon does pay taxes in Canada, but the structure is a mix of sales taxes, corporate income taxes, and (until recently) digital services taxes.
🛍️ Sales Taxes (GST/HST/QST)
- Amazon collects and remits federal and provincial sales taxes on goods sold through Amazon.ca.
- The rate depends on the province—e.g., 13% HST in Ontario, 14.975% in Quebec (QST + GST).
- Since 2021, Amazon has been responsible for collecting these taxes on behalf of third-party sellers too, under Canada’s Marketplace Facilitator rules.
🏢 Corporate Income Tax
- Amazon Canada, as a registered Canadian subsidiary, pays corporate income tax on profits earned from its Canadian operations.
- This includes income from warehouses, logistics, and retail services physically based in Canada.
💻 Digital Services Tax (DST) – Cancelled
- Canada had introduced a 3% DST on revenue from digital services like online marketplaces and ad platforms, targeting companies like Amazon, Meta, and Google.
- However, as of June 30, 2025, Canada cancelled the DST just before the first payments were due—reportedly under pressure from the U.S. government.
So yes, Amazon is taxed “normally” in the sense that it pays Canadian taxes on its physical and digital operations here—but the landscape is evolving. Want to peek into how this compares to what Amazon pays in the U.S. or other countries?
Yes, let's compare...
Let’s break it down, Louise! Here's how Amazon’s tax obligations stack up across Canada, the U.S., and Europe—and it’s a fascinating mix of corporate rates, digital levies, and regulatory quirks.
🇨🇦 Canada
- Corporate Tax: Around 15% federal, plus provincial rates (e.g., 11.5% in Ontario), totaling ~26.5% for large corporations.
- Sales Tax: Amazon collects GST/HST/QST depending on the province.
- Digital Services Tax (DST): Canada planned a 3% DST on digital revenues, but cancelled it in June 2025 under U.S. pressure.
🇺🇸 United States
- Corporate Tax: A flat 21% federal rate, plus state taxes (0%–9.8%) depending on location.
- Sales Tax: No federal sales tax, but Amazon collects state-level sales taxes in 45+ states.
- Digital Taxes: No DST at the federal level, but some states are exploring digital ad taxes.
🇪🇺 Europe (e.g., France, Italy, Spain, UK)
- Corporate Tax: Varies by country—e.g., France ~25%, Germany ~30%, Ireland 12.5%.
- VAT: Amazon must collect Value-Added Tax (VAT), typically 15–25%, depending on the country.
- Digital Services Tax:
- France, Italy, Spain: 3% DST on digital ad revenue, marketplaces, and user data.
- UK: 2% DST on search engines, social media, and marketplaces.
- These DSTs are still active, unlike Canada’s.
So while Amazon pays corporate and sales taxes in all three regions, Europe is the most aggressive with digital-specific taxes. Canada was heading that way but backed off, and the U.S. is still holding out on a federal DST.
Want to zoom in on how Amazon handles VAT in Europe or how DSTs affect pricing for sellers?
Yes to both...
Awesome, Louise—let’s unpack both
🇪🇺 How Amazon Handles VAT in Europe
Amazon is deeply embedded in the European market, and VAT (Value-Added Tax) compliance is a big deal. Here’s how it works:
- VAT Registration: Amazon sellers must register for VAT in each EU country where they store inventory or exceed sales thresholds. For example, if Amazon stores your goods in Germany, you need a German VAT number—even if your business is based in Canada.
- VAT Collection: Amazon automatically calculates and collects VAT on sales to EU customers. The VAT rate varies by country (e.g., 20% in France, 19% in Germany).
- VAT Services on Amazon: Amazon offers a service that helps sellers manage VAT registration and filing across multiple EU countries. It’s a third-party solution integrated into Seller Central.
- Pan-European FBA: If you use this fulfillment program, your inventory is distributed across several EU countries—triggering VAT obligations in each.
- Invoices & Returns: Sellers must issue VAT-compliant invoices and file periodic VAT returns in each country where they’re registered.
📌 [Amazon’s VAT guide for EU sellers](https://sell.amazon.com/blog/amazon-eu-vat) is a great starting point if you want to explore this further.
💸 How DST Affects Seller Pricing on Amazon
Digital Services Taxes (DSTs) are levied on revenue from digital platforms, and Amazon has responded by introducing a Digital Services Fee (DSF) to offset these costs:
- Fee Structure: As of October 1, 2024, Amazon began charging sellers a **DSF based on their business location and the marketplace** they sell in—not the buyer’s location.
- Example: A Canadian seller listing on Amazon.com pays a 3% DSF on referral fees—even if the buyer is in the U.S.
- What It Applies To:
- ✅ Referral fees
- ✅ Advertising fees
- ❌ Not applied to FBA or warehousing fees (for now)
- Impact on Pricing: Sellers often pass this cost on to consumers by raising prices slightly to maintain margins. For example, a $2.25 referral fee would incur a $0.07 DSF for Canadian sellers.
- Controversy: Some sellers argue this puts them at a disadvantage compared to U.S.-based sellers, especially when selling on Amazon.com or Amazon.mx.
📎 For a deeper dive, check out [this breakdown of Amazon’s DSF policy](https://www.sellerlogic.com/en/blog/amazon-digital-services-fee/).
Would you like to see how this plays out for a hypothetical Canadian seller listing in both the U.S. and EU? I can sketch out a scenario with numbers.
Let's say a researcher buys an expensive AI subscription. If he does this from Canada, there is no tax to the provider on his profit; if the sub is taken out in the United Kingdom, there is. Am I correct??
You're circling a really interesting point, Louise—and you're mostly right, but let’s fine-tune the details.
🇨🇦 In Canada
If a non-resident AI provider (say, based in the U.S.) sells a subscription to a Canadian researcher:
- They must charge GST/HST if they meet certain thresholds and are registered under Canada’s simplified GST/HST regime.
- However, Canada’s Digital Services Tax (DST)—which would have taxed the provider’s profit from Canadian users—was cancelled in June 2025 after political pressure from the U.S..
- So: Yes, the provider collects sales tax (GST/HST) from the buyer, but does not pay a DST on their profit.
🇬🇧 In the United Kingdom
If the same subscription is purchased by a UK-based researcher:
- The provider is liable for UK VAT (currently 20%) on digital services sold to UK consumers—even if the provider is based abroad.
- This VAT is collected from the buyer, but the provider must register and remit it to HMRC.
- There’s no DST on AI subscriptions per se, but if the provider runs a digital platform or marketplace, they might be subject to the UK’s 2% DST on revenues from UK users.
🧾 So in short:
| Scenario | Sales Tax (e.g. VAT/GST) | Digital Services Tax (DST) |
| Canada | Yes – GST/HST applies | No DST (cancelled) |
| UK | Yes – VAT applies | Possibly – if platform-based |
So your instinct is spot-on: Canada taxes the transaction (sales tax), but not the provider’s profit, while the UK taxes both the transaction and potentially the platform’s revenue. Want to explore how this plays out for a Canadian AI startup selling globally?
Whereas in the UK, what...
It sounds like you were about to contrast Canada’s approach with how things work in the UK—so let’s pick up that thread.
🇬🇧 In the United Kingdom...
- VAT applies by default on digital subscriptions, even from foreign providers. So if a researcher in the UK buys an AI subscription from, say, a U.S. company, that company must register for VAT in the UK and collect the 20% tax at the point of sale. It doesn’t matter that the provider isn’t based in the UK—this is part of the UK’s strict “place of supply” rules for digital services.
- If the provider is a platform, like a digital marketplace or search engine, and earns more than £25 million in UK revenue, they may also be subject to the 2% Digital Services Tax (DST). This tax is on gross revenue, not profit—so it's notably more aggressive than traditional corporate tax.
- Many digital companies respond to these taxes by baking the cost into subscription prices for UK users. So while the UK researcher pays VAT up front, there’s often an embedded DST cost in the subscription fee, even if it’s not itemized.
So, compared to Canada:
- The UK taxes both the transaction and potentially the platform’s UK-based revenue.
- The obligations apply more broadly, even to non-UK companies serving UK residents.
It’s like Canada said, “We’ll take the sales tax, thanks,” while the UK said, “We’ll take everything.” 😄
Curious how other countries—like Germany or Australia—stack up in this digital tax maze?
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