As the Biden administration steps up efforts to halt Canada’s taxes on large foreign digital services companies, the federal government says it is in close contact with U.S. partners.
The U.S. Trade Representative has requested dispute resolution talks with Ottawa under the Canada-U.S.-Mexico trade agreement.
“The United States opposes a unilateral digital services tax that discriminates against American companies,” U.S. Trade Representative Katherine Tai said in a news release Friday.
Americans have been critical of a 3% tax on foreign tech companies that earn revenue from Canadian users, meaning the companies have to pay tax on that revenue in Canada.
Tai said the tax is discriminatory and violates Canada’s commitment not to treat U.S. companies less favorably than Canadian ones.
The U.S. Trade Representative reiterated those concerns when he met with Canadian International Trade Minister Mary Ng in Washington earlier this week.
Ng and Finance Minister Chrystia Freeland maintained their support for the tax in a joint statement on Friday, saying the consultations would inform “how Canada is meeting its trade obligations.”
“Canada strongly supports international efforts to end the race to cut corporate taxes and ensure that all companies, including the world’s largest, pay their fair share wherever they operate,” the statement said.
A Canadian government representative said privately that the government was neither concerned nor surprised by the move to include the issue in a trade deal.
If the two countries are unable to resolve America’s concerns within 75 days, the United States could ask the Dispute Settlement Commission to look into the matter.
A digital tax was part of the Liberal Party’s election platform during the 2019 election campaign; both the Conservative and New Democrat parties have also proposed similar taxes.
But the Liberal government delayed its implementation to allow time for a global effort to establish a broader multinational tax scheme.
However, after lengthy delays in the Organisation for Economic Cooperation and Development (OECD) process, Canada introduced its own tax system.
Other countries have similar tools
Other countries have introduced similar measures to tax profits of large multinational companies in the digital sector.
Canadian ministers said Friday that multilateral agreements will always take precedence.
“We have been clear that Canada’s interim tax will be repealed once acceptable multilateral measures come into force,” the joint statement said.
The digital services tax has been met with opposition from industry and business groups on both sides of the border.
The Canadian Chamber of Commerce said it has warned the government that the tax could harm trade relations and increase costs in Canada.
Google said earlier this month that it would introduce a 2.5% surcharge on ads served in Canada starting in October, and groups representing Canadian advertisers have warned that other companies could follow the tech giant’s lead.
The Computer and Communications Industry Association, which represents companies including Amazon, Apple and Uber, praised Friday’s move on the Canadian tax.
“We, [the trade agreement]”The facts and the law indicate that Canada should swiftly repeal this measure,” Jonathan McHale, the association’s vice president of digital trade, said in a news release.
The Information Technology Industry Council, a policy group representing global tech companies, called on the Biden administration to “consider all available tools” as talks progress.
“While it is disappointing that Canada ignored repeated requests from stakeholders to reverse its controversial measures, the industry greatly appreciates the Biden administration taking steps to stand up for U.S. businesses and workers,” Megan Fankhauser, the council’s senior director of tax and trade policy, said in a news release.
