US Escalates Efforts to Halt Ottawa’s Digital Services Tax

The Biden administration is ramping up efforts to stop Canada’s tax on large foreign digital services companies, prompting the U.S. government to engage in discussions with its Canadian counterparts.

The Office of the United States Trade Representative has initiated dispute settlement consultations with Ottawa under the Canada-United States-Mexico trade agreement.

U.S. Trade Representative Katherine Tai stated, “The United States opposes unilateral digital service taxes that discriminate against U.S. companies.”

A three-percent levy on foreign tech giants that earn revenue from Canadian users has drawn criticism from Americans, who argue that it forces these companies to pay taxes in Canada.

Tai described the tax as discriminatory and contrary to Canada’s commitments to treat U.S. businesses equally.

During a meeting with Canada’s International Trade Minister Mary Ng, the U.S. trade representative reiterated these concerns.

Trade Minister Mary Ng and Finance Minister Chrystia Freeland reiterated their support for the tax, stating that consultations will demonstrate Canada’s compliance with trade obligations.

Canada affirms its backing for international efforts to prevent a corporate tax race to the bottom and ensure fair taxation for all corporations, including the largest ones.

An Ottawa government representative, speaking anonymously, expressed no concern over the issue being brought under the trade agreement.

If the two countries fail to address U.S. concerns within 75 days, the U.S. may request a dispute settlement panel to review the matter.

The digital tax was part of the Liberal election platform in 2019, with similar proposals from the Conservatives and New Democrats.

Despite delays in global efforts to establish a multinational taxation plan, Canada proceeded with its tax following delays at the OECD.

Various countries have introduced similar measures to tax profits of multinational digital companies.

The preference has always been for a multilateral agreement, as stated by the Canadian ministers.

“We have been clear that Canada’s provisional tax would be rescinded upon the entry into force of an acceptable multilateral measure,” the joint statement said.

The digital services tax has faced opposition from trade associations and business groups on both sides of the border.

The Canadian Chamber of Commerce warned about the tax’s impact on trading relationships and costs in Canada.

Google announced a surcharge for ads in Canada, with concerns that other companies may follow suit.

The Computer and Communications Industry Association commended the action against the tax, expecting its swift removal under the trade agreement.

The Information Technology Industry Council urged the Biden administration to consider all options as consultations progress.

“While it is unfortunate Canada ignored repeated requests to forgo its controversial measure, industry appreciates the Biden Administration’s stance for U.S. companies and workers,” said Megan Funkhouser, the council’s senior director of tax and trade policy.