The federal government is defending the new 3 per cent levy, which is largely aimed at American tech giants that generate revenue from Canadian users, including Amazon, Google, Netflix and Spotify. The Google Canada office in Toronto.Chris Donovan/The Globe and Mail
The Ontario government is calling on Ottawa to put its digital services tax on hold, saying the new levy is putting the Canada-U.S. relationship at risk and could have serious repercussions on trade.
Premier Doug Ford has called on the federal government to pause the implementation of the tax, noting that the bipartisan consensus in Washington is that Americans are “furious with Canada” over the issue. The province’s fall economic statement, released Wednesday, says the levy will have a “negative impact on a mutually beneficial trading relationship,” hurting Canadian citizens and businesses along the way.
The digital services tax, or DST, is upsetting Canada’s allies in Congress, said David Paterson, Ontario’s trade representative in Washington. It is unhelpful to the trading relationship, particularly with the upcoming renewal of the Canada-United States-Mexico Agreement in 2026, he added.
“Now is the time to be resolving issues and irritations, not collecting them,” Mr. Paterson said.
That the legislation is retroactive is particularly irksome to Americans, he explained, as is Canada’s decision to go ahead with the tax rather than waiting for the Organisation for Economic Co-operation and Development to get a global framework in place.
“There’s not all that many things that unite both Democrats and Republicans these days, but let’s not have it be opposition to Canada,” Mr. Paterson said.
The federal government, however, is defending the new 3 per cent levy, which is largely aimed at American tech giants that generate revenue from Canadian users, including Amazon, Google, Netflix and Spotify. The Liberal government first proposed a digital services tax four years ago but delayed its implementation in the hope that an international deal would be reached. The tax is strongly opposed by business groups and the Joe Biden administration.
“Canada’s priority and preference has always been a multilateral agreement. Canada strongly supports international efforts to end the corporate tax race to the bottom and to ensure that all corporations, including the world’s largest corporations, pay their fair share,” said Katherine Cuplinskas, a spokeswoman for Finance Minister Chrystia Freeland.
“The Canadian government has been clear for several years that it would move forward with its own Digital Services Tax if a global agreement is not reached. Unfortunately, despite best efforts, repeated deadlines to reach an international agreement have come and gone.”
The federal government notes that Britain, France and Italy also have a DST. While Mr. Trump threatened retaliatory action against France when he was president, the tariffs were put on hold before they took effect in early 2021 as the U.S. pursued further investigations into DSTs around the world. The U.S. signed a deal later that year with five European countries (including France) to resolve the dispute, allowing them to collect the taxes.
Canada passed the DST into law last summer. Companies are to begin paying the tax next June, however it is retroactive to January, 2022. Business groups argue the tax will negatively affect Canadians because companies will pass along the fees to consumers and it could also lead to billions in retaliatory trade measures.
U.S. Trade Representative Katherine Tai, after requesting dispute consultations in August, called the tax discriminatory and said it is inconsistent with Canada’s commitments not to treat American businesses less favourably than Canadian ones.
If the two countries are unable to resolve the United States’ concerns within 75 days (before mid-November), the U.S. may request a dispute settlement panel to examine the issue. Spokespeople for the campaigns of Democratic nominee and Vice-President Kamala Harris, as well as Mr. Trump, the Republican nominee, did not respond to requests for comment.
In a recent submission to Global Affairs Canada’s consultations on the operation of CUSMA, the Business Council of Canada, one of the country’s most influential lobby groups, said that the country cannot allow the dispute “to escalate in the immediate aftermath of the U.S. elections as a new administration comes to office.”
The group called on Ottawa to revoke the DST, remit any amounts paid to date, and recommit to the multilateral OECD negotiations alongside the U.S. The group said this could be done in the coming federal fall economic statement or in next year’s federal budget.
“To be clear, senior Biden-Harris administration and congressional officials have been explicit with the BCC and other Canadian stakeholders that if the DST issue is not resolved before the formal CUSMA review process begins, they would use their authority to prevent the agreement from being extended. This includes many who will retain their positions regardless of the outcome of the upcoming U.S. elections,” the council said in its submission.
“Opposition to Canada’s DST is a rare area of bipartisan consensus.”
Jessica Brandon-Jepp, senior director of fiscal and financial services policy at the Canadian Chamber of Commerce, said her group shares Mr. Ford’s concerns about how the DST will affect Canada’s trading relationship with the U.S. ahead of the CUSMA review.
“It’s counterproductive at a time when Canada is really trying to ensure that the prosperity and security of Canadians and Americans are aligned,” she said.
Rick Tachuk, president of American Chamber of Commerce in Canada, which represents the views of U.S. companies, said the DST is viewed as discriminatory and hostile in the United States. There is already bipartisan support in Congress for the U.S. to take trade actions against Canada as a result, he added.
“There are serious implications,” Mr. Tachuk said. “It’s not going to go away.”