The US Trade Representative Katherine Tai announced that the US has requested dispute settlement consultations with Canada under the United States-Mexico-Canada Agreement (USMCA) regarding Canada’s recently enacted digital service tax (DST) on 30 August 2024.
“The United States opposes unilateral digital service taxes that discriminate against US companies. USTR is taking action today to address Canada’s discriminatory policies,” said Tai. “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.”
These consultations concern Canada’s Digital Services Tax Act, established in Bill C-59, which was enacted on 20 June 2024.
Canada’s DST 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 favourably than Canadian businesses.
Through these consultations, the United States will continue to work with the Government of Canada to resolve their concerns. If the United States and Canada are not able to resolve the United States’ concerns through consultations within 75 days, under USMCA rules the United States may request the establishment of a USMCA dispute settlement panel to examine the matter.
The provision for the implementation of the DST was included in the Fall Economic Statement Implementation Act, 2023 (Bill C-59) drafted by Canada’s Ministry of Finance.
The DST applies a 3% 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 EUR 750 million or more and Canadian digital services revenue of over CAD 20 million. Canada expects to collect about CAD 875 million per year from the DST.
The DST entered into force on 28 June 2024.
The DST is retroactive to 1 January 2022, and companies will start paying the tax on 30 June 2025.
In addition to requesting these consultations on Canada’s DST, the United States will continue its efforts at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitised global economy and prevent the proliferation of discriminatory DSTs.
The US government has objected to Canada’s planned tax. The USTR stated that digital services taxes targeted US tech giants like Google, Apple, Amazon, and Meta, saying that it is discriminatory against US companies.
The USTR had prepared retaliatory duties against seven countries imposing digital services taxes (DSTs), such as Britain, Austria, France, Italy, Spain, Turkey, and India. These are suspended over technical details and ongoing global negotiations to reallocate taxing rights for large multinationals.
