Google plans to charge a 2.5-per-cent surcharge to help it cover the costs of complying with Ottawa’s new digital services tax.Annegret Hilse/Reuters
Google’s GOOGL-Q new surcharge for advertisements shown in Canada is sparking concern from businesses that worry it will hurt their bottom line.
The tech giant announced a new 2.5-per-cent surcharge on Thursday as a way to help it cover the costs of complying with Ottawa’s new digital services tax, Google spokesperson Shay Purdy said in an e-mailed statement.
The Liberal government’s 3-per-cent DST, which was approved at the end of June, applies to revenues collected by multinational tech companies from online marketplaces, social-media platforms, sale and licensing of user data, and online ads. To be subject to the tax, a tech company must earn annual digital services revenue of at least $20-million in Canada.
In a statement, Google said this type of tax increases the cost of digital advertising, and therefore a surcharge will be added to invoices for ads shown in Canada starting on Oct. 1.
“We will continue to pay all the taxes due in Canada and elsewhere, and we encourage governments globally to focus on international tax reform rather than implementing unilateral levies,” Mr. Purdy said in the e-mail.
Canada chose to move ahead with its own tax after a global effort to implement a multinational taxation plan suffered delays at the Organization for Economic Co-operation and Development.
Jessica Brandon-Jepp, senior director of tax and fiscal policy at the Canadian Chamber of Commerce, said she’s not surprised by Google’s announcement after the chamber warned the federal government of outcomes such as this if it went ahead with a unilateral tax.
“We’re already seeing these new costs passed on to everyday Canadians and we’re likely to see more. Like your local staycation at a cottage or grocery delivery, all these different services that rely on digital platforms are prone to get more expensive for Canadians,” she said.
Google’s surcharge could also affect how Canadian businesses reach their customers or market themselves, Ms. Brandon-Jepp said.
“We’ve been clear from the very beginning, when the government proposed this tax, that this would ripple through the Canadian economy and not just affect large companies, but also small and medium-sized enterprises,” she said.
Google ads are a commonly used form of advertising for many small and medium-sized businesses because of their relatively low cost, said Corinne Pohlmann, executive vice-president of advocacy at the Canadian Federation of Independent Business. While the impact of this new surcharge on these businesses is yet to be seen, Ms. Pohlmann said it’s just one more small thing an independent business owner has to think about.
“It can be a challenge to run a small business and this is just yet another, albeit smaller, but still another cost that they have to think about when they’re looking at ways to promote and grow their business,” she said.
Ms. Brandon-Jepp said she’d like to see the federal government repeal the tax or, at least, remove the retroactive piece of the legislation, which requires companies to pay back tax on revenue collected starting in 2022.
“Whether through lost job opportunities, increased prices or reduced choice for products and services, new taxes such as the DST are really rippling through our economy at a challenging time,” she said.
But some experts say the taxation is exactly what Canada needs to keep Big Tech in check. Allison Christians, Stikeman, chair in Tax Law at McGill University, said the point of a digital tax is to force multinational digital companies that are operating as a monopoly in Canada to pay tax, just like a Canadian company would.
She said the narrative that Canada shouldn’t be able to tax these companies is damaging, especially considering that 3 per cent is a fairly modest amount.
“It’s surprising to me when people rush to bash any tax on a foreign company that comes to Canada, takes out our advertising industry completely, and all the advertising dollars are going to U.S. firms, like Facebook or Google,” she said.
Google’s decision to add the surcharge makes sense, Prof. Christians said, because the tech company wants to be compensated for a valuable service it offers to Canadians. The surcharge is similar to the sales tax collected on goods and services sold in Canada, she added.
The DST is another revenue source for the federal government, Prof. Christians said, and at this point, it’s unclear if a multinational taxation plan would be any better. So, for now, the unilateral levy remains better than the alternatives, she said.
“You know what the worst kind of tax is? The one you can’t collect, and some other country collects instead of you.”