U.S. ambassador to Canada David Cohen delivers the keynote address at the Canadian Club of Ottawa luncheon, on Oct. 31.Adrian Wyld/The Canadian Press
The Biden administration has expressed strong concerns about Ottawa’s plans to proceed with its proposed Digital Services Tax through measures tabled in Parliament this week.
U.S. ambassador to Canada David Cohen and the office of U.S. Trade Representative Katherine Tai both provided statements Wednesday to The Globe and Mail in reaction to the federal tax.
“We are disappointed that Canada has decided to move ahead with its proposed Digital Services Tax. We will continue to engage with our Canadian counterparts to find a productive way forward,” said Mr. Cohen, who added that the U.S. will continue to support talks toward an international tax agreement.
Finance Minister Chrystia Freeland tabled a package of tax measures Tuesday that includes provisions for a Digital Services Tax, or DST, which is strongly opposed by business groups on both sides of the border.
The DST would be a 3-per-cent tax on certain revenue earned by large businesses from certain digital services. It is primarily aimed at large digital service providers such as Amazon, Google, Netflix and Spotify.
Ms. Tai, a member of U.S. President Joe Biden’s cabinet, has previously warned that the proposal singles out U.S. firms and would be viewed by her country as a violation of Canada’s legal trade obligations.
In a statement to The Globe Wednesday, U.S. Trade Representative spokesperson Angela Perez said Washington’s objections remain.
“USTR continues to have serious concerns about Canada’s proposed Digital Services Tax and opposes all measures that discriminate against U.S. businesses,” she said. “We encourage the negotiation and implementation of Pillar One of the OECD international tax agreement. Ambassador Tai and USTR look forward to working with the Government of Canada to find a productive way forward.”
Prime Minister Justin Trudeau said Wednesday that Canada is not looking to pick a fight with the United States by moving ahead with a DST on large multinationals such as Amazon.
Ottawa agrees to deal with Google over Bill C-18, sources say
Speaking with reporters ahead of a closed-door caucus meeting on Parliament Hill, Mr. Trudeau said Canada is simply not prepared to wait any longer for a global deal between member countries of the Organization for Economic Co-operation and Development.
“Back in 2020, we talked about how important it was to make sure that web giants and large multinationals who work on the internet, like Amazon and others, pay their fair share of taxes for the work they do and the operations they have here in Canada,” he said.
“This is something in line with what a number of other countries, including the U.K. and France, have already done. And then we agreed to put a pause on the bringing in of that tax while the OECD and the United States and other countries around the world worked on a global regime to make sure that it was fair everywhere. That was supposed to be done by the end of 2023. Unfortunately, that has not progressed. And therefore we’re keeping with our commitment to make sure that the largest multinationals on the internet pay their fair share of taxes in Canada and we’re going to move forward with the Digital Services Tax.”
The government motion tabled this week does not specify when Canada will enact the DST, but Ms. Freeland’s comments to reporters Tuesday strongly suggested the government intends to have it take effect on Jan. 1, 2024.
Ms. Tai, the U.S. Chamber of Commerce and the Business Council of Canada have all urged Ottawa not to proceed unilaterally with a DST but rather wait for a global deal to be reached. The U.S. has previously suggested it could impose retaliatory measures in the event Canada were to proceed with a DST on its own.
“We’re not looking to fight with the United States,” Mr. Trudeau said Wednesday.
In a statement Wednesday, Business Council of Canada president and CEO Goldy Hyder expressed hope that Canada will continue talks with the U.S. on the issue.
“Canada cannot afford to introduce a tax next year that violates our USMCA commitments. The Biden administration and U.S. Congress have been clear that doing so would force them to impose economically damaging retaliatory trade measures,” he said.
The U.S. Chamber of Commerce also expressed concern Wednesday with Ottawa’s plans, saying it would run counter to Canada’s North American free trade commitments.
“Canada’s unilateral enactment of a discriminatory DST would contravene its CUSMA obligations and undermine the ongoing OECD-led process it claims to support,” said Watson McLeish, the U.S. chamber’s senior vice-president for tax policy, in a statement. “There’s broad bipartisan support for retaliatory measures should Ottawa proceed. It’s a mystery to us why the Government of Canada would risk such a blow to the bilateral economic relationship over this issue.”
Allison Christians, who holds the chair in tax law at McGill University’s Faculty of Law, said U.S. retaliation of some form can be expected, but Canada’s position is reasonable in light of the international standstill.
“I think it’s rational, in some sense, to not wait forever when we’re not sure that the United States is going to agree,” she said. “It’s already been pushed back quite a lot of time.”