US Senators Call for Retaliation If Canada Implements Digital Services Tax

The icons of mobile apps are seen on the screen of a smart phone in New Delhi, India, on May 26, 2021. Sajjad Hussain/AFP via Getty Images

Two U.S. senators from the Senate Committee on Finance have written a letter calling for retaliation if Canada moves forward with plans to create a 3 percent digital services tax (DST), which they say will hurt U.S. businesses. 

Sens. Ron Wyden and Michael Crapo addressed the letter to U.S. Trade Representative Katherine Tai. 

“Canada continues to move forward with a discriminatory digital services tax (DST) that targets American businesses,” they wrote. “We must not allow foreign governments to target U.S. companies and the Americans they employ simply because their hard work and innovation have led them to become global leaders in this critical sector.”

The senators said that the DST would impact the nearly 8 million U.S. workers who are employed in the digital economy. 

Moreover, they called the tax discriminatory and said it targets U.S. companies and the “precise services where U.S. companies are leaders.”

“Canada’s DST will impact not just large corporations, but also the broader U.S. technology ecosystem,” they wrote. 

The Epoch Times reached out to Finance Minister Chrystia Freeland but did not hear back by publication time. 

However, details released in a 138-page document on Aug. 3 by Ms. Freeland note that the DST would be aimed at large businesses with annual revenues over 750 million euros ($1 billion) and $20 million of Canadian digital services revenue. 

The tax will result in an estimated $3.4 billion over five years, according to the National Post.

The document also said the DST would apply to a variety of services, including online marketplaces, online advertising, and social media platforms. 

“The targeted revenues are generally those that arise in connection with the digital service providers’ engagement with online users in Canada,” the document said. 

Retroactive Tax

One of the biggest concerns over Canada’s proposed DST is the government’s plans to make the tax retroactive, which would mean that companies would be expected to pay taxes from their online business activities back to 2022.

“Since the law applies retroactively to all transactions since the start of 2022, it involves reviewing literally billions of transactions and advertisements to determine location, revenues, and more. This is certainly isn’t disqualifying, but it’s complicated,” Internet law expert and University of Ottawa professor Michael Geist wrote in an Aug. 9 blog post.  

Mr. Geist also warned at the time that the DST would cause division between Canada and the United States, and could lead to retaliation by the U.S. government. 

“If the U.S. does indeed impose retaliatory tariffs, the net gain from the DST could be largely wiped out. The Canadian gamble appears to be a replay of Bill C-18, where it bet that companies such as Meta would not go ahead with news blocking,” he wrote. “In this instance, the bet is that the U.S. will not retaliate. Yet with the Canadian DST undermining President Joe Biden’s plan for a global tax deal and the DST to take effect during a U.S. presidential election year in which domestic policy is likely to play a major role, that appears to be a risky bet.”

Organisation for Economic Co-operation and Development (OECD) countries have also expressed concern over the proposed DST.

OECD Delays Digital Tax Plan

Canada said it will move ahead with the DST if an OECD deal to overhaul rules on taxing digital service companies isn’t put into place. Earlier this year, OECD countries opted to hold off for another year on the deal so that a consensus can be reached. Canada however, refused. It said holding off on the deal would put Canada at a disadvantage compared to countries that are already collecting tax revenue for digital services. 

“Canada does not disagree with the substance of the multilateral treaty that has been negotiated; indeed, we support it fully. However, without any firm and binding multilateral timeline to implement Pillar One, Canada cannot support the extended standstill in today’s ‘Outcome Statement’,” a statement issued by Ms. Freeland said.

On its website, the federal government said it would move forward with a DST unless a multinational agreement could be reached. They’ve said legislation won’t be in place before Jan. 1, 2024.

Canada first introduced the idea of a digital services tax in Budget 2021. 

Reuters contributed to this report.