The U.S. Trade Representative’s (USTR) office has submitted formal comments to the Canadian government, asking Ottawa not to adopt a proposed digital services tax (DST).
It urged the government to abandon its DST plans, suggesting instead that Ottawa focus on a multilateral plan for a global tax regime for multinational enterprises — tech giants such as Meta (Facebook’s parent company), and Alphabet Inc. (Google’s parent).
The USTR says that as a signatory to what’s called the “two-pillar” solution, Canada’s unilateral alternative risks compromising the global tax plan by encouraging other countries to make similar moves.
The global minimum tax agreement is supported by 136 countries, including all members of the G20 as well as the Organization for Economic Co-operation and Development (OECD).
Generally, countries that have unilaterally implemented a DST have stated that the tax would be repealed when an international agreement is reached at the OECD level.
The Canadian government said it had proposed the DST to protect Canadian interests, and that it had remained in close contact with the U.S. over the issue. It includes a three per cent tax on certain revenue earned by large companies that offer digital services to Canadian users or sales of Canadian user data.
The USTR said the proposal singles out American firms for taxation while excluding national firms engaged in similar lines of business. They added that if Canada does adopt a DST, the USTR would have to examine all options included under U.S. trade agreements and domestic statutes.
Canada isn’t the only country that faced opposition by the U.S. regarding the DST. The USTR voiced similar objections to France’s DST, saying this type of tax discriminately targets U.S. tech giants like Amazon and Apple.
Canada unveiled the proposed measure in April, saying it would stay in place until major nations come up with a coordinated approach to taxing the big digital companies.
The DST affects foreign and domestic entities who had a global revenue (from all sources) of €750 million or more in the previous calendar year and whose applicable revenue from Canadian sources during that year was C$20 million or more. It would mainly apply to revenue from four types of online business models that rely on engaging with Canadian online users to generate income.
The four online business models are:
- Online marketplaces: including services provided via an online marketplace that helps match sellers of goods and services with buyers. The DST would not generally apply to tangible goods stored, sold and shipped through the marketplace as well as goods and services sold by a seller through the marketplace on their own account.
- Social media: including services provided through an online interface to aid interaction with users or between users and user-generated data.
- Online advertising: includes services aimed at the placing of targeted online advertising based on data gathered from users of an online interface.
- User data: the sale of data gathered from users of an online interface.