Canada’s New Digital Services Tax Sparks Trade Dispute with US
OTTAWA, CANADA – A new tax law in Canada, aimed at generating revenue fromtech giants operating within its borders, has sparked a trade dispute with the United States, potentially costing American tech companies billions of dollars.
The Digital Services Tax (DST), introduced by the Canadian Liberal government in 2021 and enacted on June 20, 2024, levies a 3% tax on revenue generated from online marketplaces, online advertising services, social media, and user data. The legislation, supported by the G20, targets companies with global annual revenue exceeding €7.5 billion, with at least CA$20 million of that income originating from Canadian users.
The DST applies to revenue earned since January 1, 2022, with eligible companies required to begin paying the new tax on June 30, 2025. This has placed several major American tech companies, including Apple, Google, Microsoft, Amazon, and Meta, squarely within the scope of the tax.
The US government, however, views the new tax law as a violation of trade agreements like the North American Free Trade Agreement (NAFTA) and the UnitedStates-Mexico-Canada Agreement (USMCA), arguing that it unfairly discriminates against American companies.
The United States opposes unilateral digital services taxes that discriminate against U.S. companies, stated Katherine Tai, US Trade Representative, in a recent press release. The Office of the United States Trade Representative is takingaction today to address Canada’s discriminatory policy. While we engage in these consultations, we will continue to support the Treasury Department’s participation in the OECD/G20 global tax negotiations to bring a comprehensive solution to the challenges of digital services taxation.
The US Trade Representative is currently engaged in urgent discussions with theCanadian government to resolve the issue within a strict 75-day timeframe. If these efforts prove unsuccessful, the US will request a dispute settlement panel under the USMCA to address the matter.
In addition to diplomatic efforts, the US government has also employed retaliatory measures, such as imposing tariffs on countries enacting similarlegislation.
The Canadian government, however, maintains that the DST is a necessary measure to ensure fair taxation of large tech companies that profit from Canadian users while contributing little to the Canadian economy. They argue that the tax is consistent with international efforts to address the challenges of taxing digital services in a globalized economy.
Thedispute highlights the growing tensions surrounding the taxation of digital services, as countries grapple with the challenge of ensuring that multinational tech companies contribute their fair share to the economies where they operate. The outcome of the US-Canada dispute could have significant implications for the future of digital taxation globally.
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