Federal Government provides updates on Pillar One and Pillar Two and proposes income, sales and excise tax amendments
On March 28, 2023, Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland, delivered the Liberal Government’s federal budget, “A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future” (“Budget 2023”). Among other things, Budget 2023 provides updates on the government’s approach to the Organisation for Economic Co-operation and Development (OECD)/Group of 20 (G20)’s Inclusive Framework on Base Erosion and Profit Shifting and, in particular, the two-pillar plan for international tax reform.
In general, Pillar One will reallocate residual taxing rights, and Pillar Two will implement a global minimum tax of 15%, in each case in respect of the profits of certain large multinational enterprises (“MNEs”).
Budget 2023 confirms that:
- while the government remains hopeful that the international community will complete the necessary steps to implement Pillar One, the previously-announced digital services tax could come into force on January 1, 2024 in respect of revenues earned as of January 1, 2022 unless the Pillar One multilateral convention has come into force by that date; and
- with respect to Pillar Two, the government will release draft legislation for public consultation to implement: (i) the primary charging rule, the Income Inclusion Rule, and a domestic minimum top-up tax applying to Canadian entities of certain MNEs in the coming months (effective for fiscal years of MNEs that begin on or after December 31, 2023); and (ii) the secondary “backstop” rule, the Undertaxed Profits Rule, at a later time (effective for fiscal years of MNEs that begin on or after December 31, 2024).
For a discussion of these tax measures and others in Budget 2023, please see McCarthy Tétrault’s Budget 2023 Commentary.