International news

Canadian Chamber of Commerce urges Minister of Finance to abandon digital services tax

The Canadian Chamber of Commerce urged Chrystia Freeland, Deputy Prime Minister and Minister of Finance of Canada, in a letter to drop plans for a unilateral digital services tax (DST). The letter provides that the DST “will hurt Canadian businesses by directly undermining the US-Canada trading relationship and our commitments to the OECD.” The letter delivers a reminder that the G20/OECD global tax plan provides that “no newly enacted Digital Services Taxes or other relevant similar measures will be imposed on any company from 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the Multilateral Convention.”

The Canadian government’s Digital Services Tax Act provides that “the DST would be payable as of the year that it comes into force in respect of revenues earned as of January 1, 2022” provided that the Pillar 1 framework is not implemented. The latest budget by the Department of Finance included the potential enactment of a digital services tax. Canada's proposed digital service tax has been a subject of concern of United States senators and the United States Trade Representative in the recent past. President Joe Biden is expected to visit Canada from March 23-24.

The letter concludes by providing that “Canada’s unilateral, discriminatory DST only adds to the headwinds facing Canadian businesses. As Canada prepares to welcome our closest ally, the Canadian Chamber urges the government to standstill on the Digital Services Tax Act, drop its retroactive application, and fully support the implementation of the G20/OECD two-pillar plan that has been agreed to by over 130 countries.”

OECD holds public consultation meeting to discuss tax certainty aspects of global minimum tax

The OECD held a virtual public consultation meeting on compliance and tax certainty aspects of global minimum tax on March 16th. The agenda for the meeting was provided in advance. The meeting included a discussion of comments received on the OECD’s public consultation documents on the Tax Certainty for the GloBE Rules.

Various businesses, firms, and trade groups expressed their opinions regarding the need for tax certainty and compliance with respect to the global anti-base erosion rules which serve as the foundation for the global minimum tax framework. Futoshi Miyazaki of Keidanren (Japan Business Federation) highlighted the differences in calculating the effective tax rate for purposes of qualified domestic minimum top-up taxes (QDMTTs) and the income inclusion rule. Thomas Quatrevalet of the International Chamber of Commerce discussed the importance of coordination among the various countries involved in applying QDMTTs, particularly with respect to the income inclusion rule or the undertaxed profits rule. Anne Gordon of the National Foreign Tax Council also discussed return filing requirements and ordering rules to ensure that information returns should not be required in parent jurisdictions where no top-up taxes are due. However, Gordon noted that if a filing is required, “it should just simply be a short form” to indicate that the entities in a specified jurisdiction are not subject to the income inclusion rule or the undertaxed profits rule.

All comments were due by February 3, 2023 and are now published on the OECD webpage.

United States news

Illinois DOR issues guidance on taxability of computer software licenses and maintenance agreements

The Illinois Department of Revenue (IDOR) released a general information letter outlining the applicability of Illinois Retailers’ Occupation Tax (ROT) on computer software licenses and maintenance agreements.

The letter states that sales of “canned” computer software are taxable retail sales in Illinois and are considered to be tangible personal property regardless of the form in which it is transferred or transmitted. However, if the computer software consists of “custom” computer programs, then the sales of such software may not be taxable retail sales. In addition, if the computer software, including canned software, is licensed and the license agreement meets the specified criteria in 86 Ill. Adm. Code § 130.1935(a)(1) (distinguishing licenses from sales a retail), neither the transfer of the software license nor the subsequent software updates are subject to ROT. With respect to the software maintenance agreements, the letter provides that taxability depends on whether the charges for the agreements are included in the selling price of the tangible personal property. The IDOR notes that software maintenance agreements are not taxable if the agreements for the maintenance of tangible personal property are sold separately from the tangible personal property. However, the service providers would incur use tax based on their cost price of tangible personal property transferred to customers incident to the completion of the maintenance service. On the other hand, if the charges for the software maintenance agreements are included in the selling price of the tangible personal property, the charges are part of the gross receipts of the retail transaction and subject to ROT, but no ROT is incurred on the maintenance services or parts when the repair or servicing is performed.