One of the new executive orders signed by US President Donald Trump puts the Liberal government’s digital services tax in the purview of the US Departments of Commerce, Treasury and Trade, further deteriorating trade relations between the two countries. There is a fear.
of America First Trade PolicySigned into effect by President Trump on Monday night, it ensures that U.S. trade relationships best benefit “America’s workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.” I’m aiming for it.
The bill directs the secretaries of the Treasury, Commerce, and U.S. Trade Representative (USTR) to investigate whether foreign countries impose “discriminatory or extraterritorial taxes on U.S. citizens or businesses.” are.
Last June, the Liberal government enacted the Digital Services Tax (DST), imposing a 3% tax on Canadian domestic revenue, hitting large foreign-based digital companies with at least $1.1 billion in revenue and It promised to bring in billions in revenue. It’s over $20 million.
This tax is retroactive to January 1, 2022.
Business groups on both sides of the border have opposed DST, and the Biden administration requested dispute resolution talks with Canada under the Canada-United States-Mexico Agreement (CUSMA) in August.
When that consultation period ended in November, the Biden administration did not take the dispute to the next stage, including requesting the establishment of a dispute resolution committee under CUSMA. There is no deadline for when the United States may pursue that action.
President Trump could seek a resolution from the committee, but trade experts say the process will take time and the new US administration is unlikely to wait up to a year for a ruling.
President Trump’s authority to impose 50% tariffs
Jesse Goldman, a partner at Canadian law firm Osler Hoskin & Harcourt who specializes in competition, trade and foreign investment, told CBC News that DST is a “major friction point” in the U.S.-Canada trade relationship. He said that it is one of the.
“Until Canada’s digital services tax is repealed or Canada and the U.S. reach a different type of agreement, it is true that unilateral action by the United States on Canada’s digital services tax will not get anything done,” he said. I think it’s very certain,” he said.
Under Section 338 of the Tariff Act of 1930, President Trump has the authority to unilaterally impose tariffs of up to 50% on imports deemed to discriminate against the United States, but he has the power to impose tariffs of up to 50% on a country’s imports completely. It is also possible to prohibit it.
Goldman said that while a complete ban is highly unlikely, if Canada does not repeal DST, President Trump’s response could be in the form of tariffs enacted through presidential proclamation as authorized by Section 338. It is said that there is a high possibility that it will appear.
Canadian and US business groups urge action
The Canadian Chamber of Commerce, which has long opposed DST, told CBC News that Canada should use President Trump’s executive order as motivation to act “very strongly and decisively” to repeal the tax.
“This memorandum leaves no room for any more doubts. I think his position is very clear,” said the chamber’s Jessica Brandon Jepp.
“Canada’s [digital services tax] “This is a serious trade risk and will undermine our relationship with our largest trading partner, while increasing costs for Canadians and making it harder to start and grow businesses in Canada.”
When the bill enabling the tax passed Congress in June, the U.S. Chamber of Commerce said it would hurt digital exports, hurt innovation and violate Canada’s international trade obligations.
“At a time when Canada and the United States’ trade relationship is extremely sensitive, we urge the Canadian government to reconsider this new unilateral and discriminatory tax,” the U.S. Chamber of Commerce said in a statement at the time. Ta.
Reporters asked Finance Minister Chrystia Freeland about the risk of U.S. retaliation following Ottawa’s move to introduce a digital services tax.
Goldie Hyder, president and CEO of the Business Council of Canada, told CBC News this week that President Trump’s executive order shows DST is putting CUSMA at risk.
“There is strong bipartisan consensus among Republicans and Democrats that Canada’s DST discriminates against U.S. businesses and violates our commitments under CUSMA,” Haider said in an email. said.
He added: “The value of the revenue raised by the tax is not worth the cost of jeopardizing our economic partnership with the United States.”
Computer and Communications Industry Association representing Apple, Meta, Amazon, Uber, eBay, and Google Among other digital giantssaid the tax violates the fundamental nature of free trade.
Jonathan McHale, the association’s vice-president for digital trade, told CBC: “This fundamental aspect of how trade works is becoming increasingly important because there is an expectation that taxes will be levied by the national government, not necessarily by the entity providing the service. It will be damaged,” he said. news.
“We don’t want a share of the profits from softwood lumber, maple syrup or hockey sticks,” he said. “Extending the reach of tax authorities into this cross-border area is highly unusual.”
Prime Minister Trudeau won’t rule out DST negotiations
The Canadian Center for Policy Alternatives (CCPA) supports DST, arguing that the big tech companies facing the tax are largely unregulated and already experience low tax burdens.
“It’s completely fair to require these companies to pay some tax on the goods and services they supply in Canada,” said Stuart Truew, CCPA’s trade and investment research project director. .
He said concerns that the U.S. could impose tariffs on Canadian imports are motivating businesses on both sides of the border to step up their opposition to the tax.
“This is one of many areas facing a barrage of economic coercion from President Trump, whether to score a quick win or set Canada back in some way. “It’s a bit of a wake-up call that we’re not dealing with a friendly nation,” Tru said.
Speaking from Montebello, Kenya, the day after President Donald Trump’s inauguration, Prime Minister Justin Trudeau asked how Canada can manage its relationship with the United States in the face of the president’s unpredictability on tariffs and trade. I was asked.
Prime Minister Justin Trudeau did not rule out the possibility Tuesday when asked if he would be willing to negotiate DST with the Trump administration.
“Obviously, we’re not going to negotiate in public,” he said, speaking at a Liberal Party cabinet dinner in Montebello, Kenya. “We will always work with our American partners in a constructive manner while defending Canadian interests, Canadian values, Canadian sovereignty and Canadian culture,” Trudeau said.
“We recognize the importance of working well with our American partners while protecting our own interests,” he added.
The Liberal government first proposed the tax in its 2019 election platform. It then agreed to postpone implementation of the measure until the end of 2023, in the hope of reaching an agreement with other OECD countries on how to tax multinational digital companies.
The federal government views DST as a way to bring the tax code up to date and allow foreign-based companies to capture revenue earned in Canada.
Multinational digital companies such as Meta, Alphabet Inc., Facebook Inc., and Amazon Inc. argue that they can avoid paying certain taxes because they are not based in many of the countries in which they operate.
The Congressional Budget Office estimated last year that the tax would generate more than $7 billion in revenue over five years. The 2024 budget projects revenue of $5.9 billion over the five years starting in 2024-25.
The Computer and Communications Industry Association estimates that U.S. companies could pay up to $1 billion a year in taxes if the measure remains on the books.
