The United States ambassador to Canada, David Cohen, recently expressed concerns about the Canadian government’s plans for a digital services tax. Speaking at a luncheon hosted by the Canadian Club of Ottawa, Cohen warned that there could be a “big fight” if the tax proposal goes ahead. The tax, which is set to take effect in January, aims to target foreign companies, particularly streaming services, that generate revenue from Canadian users.
In an effort to wait for the development of a similar international digital tax framework being assembled by the Organization for Economic Co-operation and Development (OECD), the implementation of the Canadian tax was delayed until 2024. While the U.S. understands Canada’s position, Cohen emphasized the need for more time to align with the OECD framework. Members of the House Ways and Means Committee in the U.S. had previously written to warn of “significant consequences” if Canada proceeds with the tax.
Cohen acknowledged that the Canadian position is not unreasonable and that both Canada and the U.S. want to see the OECD framework implemented promptly. However, he argued that a “country-by-country” approach would be unfair and discriminatory towards U.S. companies. The United States believes that digital services taxes are discriminatory, and Cohen explained that they have asked for an additional year or two to establish the OECD framework.
The imposition of a digital tax by Ottawa has become a growing concern in Washington as it has the potential to strain Canada-U.S. relations. Members of Congress, including Democrats and Republicans, signed a letter addressed to Treasury Secretary Janet Yellen and U.S. Trade Representative Katherine Tai, expressing worries about the proposed tax. They questioned whether it would violate Canada’s obligations under the U.S.-Mexico-Canada Agreement or its commitments to World Trade Organization treaties.
The letter also highlighted that the majority of OECD countries involved in the issue have agreed to extend their own timeline for implementing the tax until the end of 2024. Prior to a bilateral meeting between Joe Biden and Justin Trudeau, industry lobbyists urged the U.S. president to take a firm stance on the issue with his Canadian counterpart. They warned that Canada’s position could set a harmful precedent for other countries participating in the OECD effort, potentially leading to the imposition of taxes on U.S. digital services.