United States looking at all options to respond to Canada's digital services tax

The Office of the United States Trade Representative says it will do what's necessary to halt Canada's tax on large foreign digital services companies.

Last month, Parliament approved the government's plan to add a three per cent levy on foreign tech giants which generate revenue from Canadian users. It means the companies will have to pay taxes on that revenue in Canada.

Many of those companies are based in the United States and American industry is demanding action.

The Computer and Communications Industry Association, which represents big tech companies such as Amazon, Apple and Uber, called on President Joe Biden's administration to take formal steps under the U.S.-Mexico-Canada Free Trade Agreement.

"With Canada's DST now law, the time has now come to announce action," said Jonathan McHale, the association's vice president of digital trade, in a news release.

It joined 10 other trade associations in sending a letter to United States Trade Representative Katherine Tai urging a robust response.

An official in Tai's office said Monday they are open to using all available tools.

The digital tax was part of the Liberal election platform during the 2019 campaign. Both the Conservatives and New Democrats also proposed similar levies.

The Liberal government, however, delayed its implementation in order to give more time to global efforts to establish a broader, multinational taxation plan.

A spokesperson for Finance Minister Chrystia Freeland said Canada's priority and preference has always been a multilateral agreement.

"The Canadian government has been clear for several years that it would move forward with its own digital services tax if a global agreement is not reached," Katherine Cuplinskas said in an email.

"And we are committed to protecting Canada's national economic interest."

Other countries have brought in similar tools to tax the profits of large multinational companies in the digital sector. But critics of the Canadian measure wanted Ottawa to put it on hold to allow the Organization for Economic Co-operation and Development additional time to get the global framework in place.

But that framework has seen significant delays, particularly from the U.S. where moves to sign on to the agreement could remain stalled by a divided Congress.

The Liberals maintained that they have been clear with their American counterparts that Canada would proceed with the tax if there was no movement on the global framework.

The U.S. Chamber of Commerce and American Chamber of Commerce said in a news release last month that the Canadian tax is in contravention of that global framework and international tax principles.

"At this very sensitive time in the Canada-U.S. trade relationship, we urge the Government of Canada to reconsider this unilateral and discriminatory new levy, refrain from designating its implementation, and re-join the ... multilateral process in recognition of the importance of a common approach to the North American marketplace."