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American Firms Concerned By Canadian Digital Tax Plan

by Mike Godfrey, Tax-News.com, Washington

25 November 2019


Representatives from US trade and industry associations have voiced concern about a digital services tax proposal floated during the recent Canadian election which they argue will "impose discriminatory requirements on the digital economy."

During last month's Canadian election, the Liberal party pledged to ensure that "multinational tech giants pay corporate tax on the revenue they generate in Canada." The party's manifesto said that a Liberal government would "work to achieve the standard set by the OECD to ensure that international digital corporations whose products are consumed in Canada collect and remit the same level of sales taxation as Canadian digital corporations." The Liberals have formed a minority government.

A number of organizations, including the US Chamber of Commerce, the Internet Association, the National Foreign Trade Council, and the Computing Technology Industry Association, have written to the US Secretary of State, the US Trade Representative, the US Secretary of Treasury, the Director of the US National Economic Council, and the US Secretary of Commerce to criticize the plans.

According to the letter, the Liberals' proposal "would undermine US investment in Canada's technology market and threaten compliance with its commitments under the World Trade Organization (WTO), the North America Free Trade Agreement (NAFTA), and the United States-Mexico-Canada Agreement (USMCA)." The letter urged the US ministers to engage with their Canadian counterparts "to discourage them from proceeding with this proposal."

The letter argued that the tax would disproportionately affect US firms and that unilateral measures "threaten the progress of multilateral, collaborative work that considers all aspects of the changing global economy."

The letter also suggested that "by imposing a DST on US companies, Canada may violate the obligation it has to provide national treatment for US companies under NAFTA and USMCA." It noted that commitments on digital free trade had been made in last year's USMCA and added that the organizations "are disheartened to see the Canadian Government pursue a measure that goes against the spirit of that new chapter before the agreement has even been ratified."

The letter called on Canada to "immediately reverse its proposal, and commit to engaging cooperatively in the OECD process."

TAGS: compliance | tax | investment | sales tax | Organisation for Economic Co-operation and Development (OECD) | Mexico | internet | transfer pricing | Canada | United States | tax reform | retail | trade | services | North America | BEPS

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