Digital Service Tax which is Alleged Discriminates against US Comparing

[ABS News Service/03.09.2024]

The United States is seeking dispute settlement consultations with Canada under the US-Mexico-Canada Agreement, citing concerns about Canada’s recently enacted digital service tax.

“The United States opposes unilateral digital service taxes that discriminate against US companies. USTR is taking action today to address Canada’s discriminatory policies,” US Trade Representative Katherine Tai said.

“As we pursue these consultations, we will continue to support the Department of the Treasury in the OECD/G20 global tax negotiations to bring a comprehensive solution to the challenge of DSTs.” Ms. Tai discussed US concerns about Canada’s DST in a meeting earlier in the week with Canadian International Trade Minister Mary Ng.

Canada’s Digital Services Tax Act, which was enacted on June 20, appears to be inconsistent with Canada’s commitments under the Cross-Border Trade in Services and Investment chapters of the USMCA not to treat US businesses less favorably than Canadian businesses, according to USTR.

Talks to Continue

Washington will continue to work with the Canadian government to resolve its concerns. If the two sides are not able to resolved the issues within 75 days, under USMCA rules the United States may request the establishment of a USMCA dispute settlement panel to examine the matter.

The DST applies a 3 percent tax on revenues relating to online marketplaces, online targeted advertising, social media platforms, and user data. The tax applies to companies or groups with annual global revenues of $750 million or more and Canadian digital services revenue of more than CA$20 million. Canada expects to collect about $875 million per year from the DST. The DST is retroactive to January 1, 2022, and companies will start paying the tax on June 30, 2025.

According to a USTR readout their meeting, Ambassador Tai and Minister Ng “reviewed the ongoing cooperation under the USMCA and reaffirmed the importance of the close US-Canada relationship.”

Ms. Tai “welcomed Canada’s recent announcement concerning electric vehicles, steel, and aluminum.” The two ministers also discussed North American supply chain resilience, especially for electric vehicles, and collaboration on issues related to non-market policies and practices of other countries.

She reiterated the United States’ “strong concerns with Canada’s unilateral digital service tax” and “longstanding dissatisfaction with Canada’s dairy tariff rate quota allocation measures.”

The ministers also discussed trade in softwood lumber products.