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Canada seeks G7 consensus on taxation of digital giants

Toronto Star 18 Jul 2019 Heather Scoffield

The mention of Chantilly evokes images of fluffy whipping cream, delicate lace and refined chateaux.

But the atmosphere Finance Minister Bill Morneau finds himself in this week as he meets with his G7 colleagues in the French town near Paris is anything but delicate and refined. It is brutal realpolitik in action.

The finance ministers from the world’s richest democracies are wrestling with a deeply disruptive twoheaded beast that is actively undermining the established global order, in the form of increasingly powerful and pervasive Big Tech as well as the unpredictable and vengeful Donald Trump.

Morneau’s approach is to keep his head down and look for a global alliance to come to the rescue.

In the current circumstances, while it’s not very satisfying, that’s probably the best we can do. It has come to this. France, in contrast, is not leaving anything to chance. The French government has just passed a 3-per-cent tax on revenues of large tech companies.

And since France is hosting the finance ministers this week, as well as the subsequent summit of G7 leaders next month in Biarritz, the move is deliberately provocative.

The Americans vowed immediately to unleash trade retaliation against France in response And Canada, according to unnamed French officials quoted by international media covering the Chantilly meeting, has tried to avoid getting caught up in the trans-Atlantic tiff, pleading an inability to act decisively due to the coming election.

Publicly, and not surprisingly, that’s not how Morneau puts it.

France, he says, will stand down with its unilateral measures as soon as global powers can come together and figure out how to deal with corporate powerhouses that don’t pay tax in many countries despite reaping profits there.

“That approach won’t prevail if we can get to an international agreement.

“I have a high level of confidence that we’re moving towards an international agreement that can make sense,” Morneau said in a phone interview from Chantilly.

Unilateral action by some countries could prompt others to race to the bottom, he said, and defeat the purpose of forcing digital giants to pay their fair share of tax. Instead, the G7 will drive the Organization for Economic Cooperation and Development to quickly establish digital tax rules for all. And then Canada can move ahead.

“We do need to make sure that the large digital companies — as well as any other company for that matter — are paying their fair share of tax,” Morneau said.

“What we want to make sure of is that companies pay their fair share of tax in the place where they create their value. So, if a company is getting value out of the Canadian economy, we don’t want them to be paying tax somewhere else. We want them paying tax in Canada.”

He has a similar approach to Libra, Facebook’s proposal for a cryptocurrency that has alarmed financial regulators and privacy advocates around the world. Morneau says he sees eye to eye with the G7 that Libra raises serious questions, and he agrees regulators need to protect consumer safety. But in a hat tip to the American penchant for free markets, he adds that Canada would never stand in the way of technological advances.

“What we’re walking away with here is that we have significant concerns over how this has been put forward right now. We’re obviously never going to say that we shouldn’t have technological progress,” Morneau said.

The G7’s main preoccupation these days, however, is to boost global growth — which is in the doldrums, lately, especially in advanced economies that are dealing internally with aging workforces and are also exposed to international trade.

The trade war between the United States and China has crushed supply chains for many companies and injected massive amounts of uncertainty into business decision-making, slowing economic activity everywhere.

Canada’s cautious approach means no tirade against destructive protectionism. Morneau’s interventions at the G7 meetings will focus on domestic measures his government has taken to promote the middle class and use fiscal policy for inclusive growth.

“We have to realize that trade, global trade, is in fact an issue that is presenting some challenges to global growth. That’s the environment we find ourselves in. We need to recognize the challenge,” he said.

“In the absence of making immediate progress, which is very much a U.S.China discussion, we need to be focusing on investing (in) the future for Canadians.”

The strategy — focus on what you can control; look for help from global alliances; and be ever vigilant not to poke the bear called Trump — has meant Canada has been able to keep the door mostly open with the United States.

On the diplomatic front, Morneau met with U.S. Treasury Secretary Steven Mnuchin on Wednesday and had a frank discussion with him about Buy America. The two countries’ governments are still talking frequently.

On the trade front, Canadian exports to the United States were at a record high in May, fuelling growth in the Canadian economy almost against all odds.

While global diplomacy these days is not all whipping cream and lace, for Canada at least, it could be a lot worse.


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