Canada’s planning to impose a digital services tax. The U.S. government is not amused.
Canada’s planning to impose a digital services tax. The U.S. government is not amused.
The U.S. and Canada are sparring over another trade issue. They’ve put disputes over softwood lumber and dairy products behind them; now they’re at odds over Canada’s proposed tax on digital services. The Biden administration says it’s unfair to U.S. businesses. But, as Canada points out, other countries are already charging the tax.
Ottawa wants to levy a 3% tax on revenues from online advertising and marketplaces, plus social media and sales of user data. Only the biggest tech companies doing business in Canada would pay the tax. Renu Zaretsky at the Tax Policy Center says that means: “It tends to fall on very large companies that happen to come from one particular country – namely the United States.”
The U.S. Treasury Department emailed Marketplace a statement saying it “continues to have serious concerns about Canada’s proposed digital services tax and continues to oppose all tax measures that discriminate against U.S. businesses.”
But Allison Christians, a law professor at McGill University in Montreal, says Canada points out that other countries are already charging a digital services tax.
“Austria, France, India, Italy, Spain, Turkey and the U.K.,” she said.
Now the U.S., Canada and more than a hundred other countries are negotiating a global digital services tax that would supersede those individual taxes. The U.S. tells Canada, ‘Hey, just wait for the global tax to be finalized. No need to jump ahead.”
But Christians says any global tax deal would have to be approved by all of those countries’ legislatures and the U.S. Congress isn’t known for lightning speed.
“Canada like a lot of countries is frustrated with the pace of international agreement and I think, wary that they may be waiting in vain for the U.S. to agree to something,” she said.
There are worries that tensions between the U.S. and Canada over the digital tax could turn into a trade war. Daniel Bunn, the President and CEO of the Tax Foundation, said the U.S. could hike tariffs on imports from Canada.
“One of the things that has been consistent over the years in different trade disputes with Canada — softwood lumber has been top of the list — and that could be a major impact for U.S. importers of that key input for homebuilding,” he said.
Trade groups representing U.S. businesses are weighing in, and they don’t want a trade war. The National Foreign Trade Council sent Marketplace a statement urging Canada to, “focus” on the multilateral process underway.
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