The fight over Canada’s controversial digital services tax could intensify this week as a deadline looms for the Biden administration to decide whether to proceed with arbitration of the dispute amid threats of retaliation from the incoming administration of Donald Trump. be.
On August 30, U.S. Trade Representative (USTR) Katherine Tai filed a formal complaint alleging that Canada is subject to a 3% tax under the Canada-United States-Mexico Agreement (CUSMA). I filed a complaint. Implemented over the summer It unfairly discriminates against American companies.
The move started a 75-day consultation period. It ends this week. But President Joe Biden’s administration is currently in a lame duck position, and it is unclear whether Tai will escalate the dispute by asking an arbitration panel to determine whether the Canadian taxes actually violate CUSMA. .
USTR’s other option is to ignore the allegations for now and leave it to the incoming Trump administration to take up and pursue the matter, which could carry even greater risks for Canada.
“The first Trump administration… was very clear about the digital services tax. It would be a ‘for us, against us’ scenario,” said John Dickerman, vice president of policy at the Washington-based Business Council of Canada. spoke.
“I don’t think there’s much room for negotiation when it comes to DST.”
As Tai launched the CUSMA dispute with Canada, the USTR’s statement also called for U.S. Treasury Janet Yellen’s call for talks between the OECD and G20 countries to reach a multilateral agreement on taxing large global technology companies. He made it clear that he would continue to support the Secretary-General’s participation.
These countries have pursued such agreements to prevent digital companies from competing with each other for jurisdiction or organizing to minimize or avoid taxation.
But Dickerman said those arguments may be ignored under the Trump administration. “Multilateral solutions are not as attractive as bilateral solutions,” he said.
Economic groups have been warning for some time.
Canada’s DST applies to businesses that generate more than $20 million in annual revenue from the sale of online advertising, social media, streaming services or data storage in Canada. This is not the case for small startups. The scheme is triggered when a tech giant’s annual revenue exceeds the international threshold of more than 750 million euros (C$1.1 billion).
The risk of direct tariff retaliation from the U.S. poses a threat to organizations like the Canadian Chamber of Commerce. I opposed the introduction of DST in Canada from the beginning..
Before the results of last week’s election were known, Ontario Premier Doug Ford said he had heard how “furious” Americans were about taxes and called for a moratorium on them.
Last week, if Americans had elected more Democrats to Congress, Yellen and Finance Secretary Chrystia Freeland said they would join the multilateral process they are trying to steer towards a treaty. , could have been more patient or even supportive.
Populist calls for some of these companies to be downsized or broken up, or at least to pay their fair share of taxes to fund social services, had been gaining some traction even before the election. This may explain why the Biden administration did not spend more of its capital to protect the trade interests of big U.S. technology companies, even though more hawkish voices in Congress were dissatisfied.
However, the incoming Trump administration has fairly close ties to tech tycoons like Elon Musk.
“Many major digital company executives reached out to Mr. Trump during the election,” said Mark Warner, a trade lawyer based in Toronto and New York. He said he doesn’t think this bodes well for Canadian taxes once he takes office.
“Digital stuff is easier for people to understand because it looks like, ‘Wait a minute, it’s only for businesses.’” [Canada is] It’s America’s big corporations that are hurting,” Warner added.
“Whatever the logic, whatever the definition, it’s easy to frame the problem that way… ‘You say you’re our best friend. You’re going after our big corporations.’ What is this?
Despite previous threats of retaliation from the United States, Mr. Freeland’s office has focused on how France, the United Kingdom, and Italy collect digital services taxes.
Finance Minister Chrystia Freeland is defending a controversial new tax on foreign tech giants such as Netflix, Google and Amazon. He says this will bring in billions of dollars in revenue, but experts say consumers will end up paying more.
“Meanwhile, in Canada, some of the world’s biggest companies are making huge profits doing business in Canada and yet are not paying their fair share. That is not right and makes Canada significantly less It puts us at a disadvantage,” Freeland spokeswoman Katherine Cuplinkas said. CBC News.
“What we always want is a multilateral solution,” he said, noting that Canada has already made “significant concessions” towards international agreements, including delaying the implementation of its own tax. did.
“We look forward to working again with President Trump and his administration on important issues on both sides of the border.”
The Trudeau government had hoped the DST would bring in more than $7 billion in benefits in its first five years, but once President Trump takes office, it may be forced to acknowledge this windfall to avoid punitive action. I don’t know.
This may disappoint progressives like the New Democratic Party, which has long argued that big business needs to pay its share, but now focuses Ottawa’s attention on fears of even greater economic damage. There may be a need.
Robert C. O’Brien, former national security adviser to President Trump I wrote recently “Allies seeking to constrain the United States economically must remember that America’s global technological leadership, including the digital services market, is a national security issue for the United States.”
Even if the Biden administration uses its remaining weeks to move the dispute to the CUSMA arbitration process, it’s unclear whether Canada will be able to protect its taxes from claims that would shake up U.S. companies.
“Canada may have a safe port under their jurisdiction.” [CUSMA] Elizabeth Trujillo of the University of Houston Law Center said, “This raises the question of whether the language fought in this agreement to protect Canada’s right to subsidize and support its own arts and media industries is applicable in Canada. “I think so,” said Elizabeth Trujillo of the University of Houston Law Center. “Whether or not this case is truly a cultural exception is debatable.”
With the World Trade Organization also struggling to oversee the ever-expanding digital economy, Trujillo said it will be an issue when CUSMA is brought up for a forced review, if not a complete renegotiation, in 2026. He said it was certain that it would happen.
“There’s already tension around these issues,” she said.
