Ottawa (14 Oct. 2021) — Contrary to what the federal government is claiming, the OECD agreement on corporate taxation won’t ensure the world’s largest corporations pay their fair share. In fact, according to Canadians for Tax Fairness many tech giants will pay far less than they would have paid without the agreement.
Huge gap between rhetoric and reality
There is a huge difference between what the federal government said about the OECD agreement and what’s actually in it.
According to the federal government, “Pillar One of the OECD agreement will ensure that the largest and most profitable global corporations, including large digital corporations, pay a fair share of tax in the jurisdictions where their users and customers are located.” The reality is that Pillar One will apply only to a small portion of corporate profits. In a number of cases, wealthy corporations will actually be paying less tax under the new agreement.
What is actually in Pillar Two, the minimum corporate tax, also doesn’t live up to the federal government’s claim that it “will help to end the race to the bottom in corporate taxation.” Instead, the minimum rate has been set at 15%. That’s far less than the current corporate tax rate in most OECD countries.
Tax reductions of between 64% and 100% for big tech corporations
Canadians for Tax Fairness has compared what is likely to happen under Pillar One of the OECD agreement and the taxes that big tech corporations would pay under the planned Canadian Digital Services Tax. For 5 large companies it represents a reduction of between 64% and 100%. Amazon would go from paying $175 million under the planned Digital Services Tax to nothing under the Pillar One proposals.
This is an issue because the agreement is meant to replace digital service taxes, and the federal government has already said the Digital Services Tax won’t take effect if the agreement comes into force.
Federal government was warned about dangers of weak agreement
Over the last few months there have been many voices calling for the federal government to push for a stronger agreement that would do more to improve tax fairness. This included the National Union.
In a letter to Chrystia Freeland, the Deputy Prime Minister and Minister of Finance, Larry Brown, the President of NUPGE, expressed concern that the proposals for reforming international corporate taxation that will be discussed by the G20 (representing most of the world’s largest economies) are too weak to have an impact.
Reality unlikely to match hype
Too often with tax fairness measures the reality has not matched the claims. There is a real danger that this will happen again with the discussion of changes to international tax rules. That makes it important that the Canadian government aggressively push for tougher measures. Unfortunately, based on what we have seen so far, that is by no means certain.
Action needs to match rhetoric
The gap between the rhetoric about tax fairness and what’s actually in the agreement illustrates one of the big problems with both the current federal government and the previous federal government when it comes tax fairness. Successive federal governments have tried to sell measures that do little to ensure large corporations and the wealthy pay their share as important steps towards tax fairness.
We cannot afford this double talk. Canada and other countries are struggling to pay the costs of the COVID-19 pandemic and the measures needed to reduce emissions that cause climate change. Weak international agreements on taxation aren't just unfair — they're dangerous.
Instead of putting their efforts into trying to convince Canadians that weak agreements or token gestures are big steps towards tax fairness, it’s time for the federal government show a bit of courage and take the steps needed to make large corporations and the wealthy pay their share.