The United States on Friday said it has requested trade dispute settlement consultations with Canada over its new digital services tax, which the Biden administration suggested was inconsistent with Canada’s North American trade obligations.
U.S. Trade Representative Katherine Tai’s office said in a statement that it will work with Canada to resolve U.S. concerns over the new tax, enacted this summer, through the consultations. But if an agreement cannot be reached after 75 days, it may request a dispute settlement panel under the Canada-United States-Mexico trade agreement.
The request for consultations is the first step in the agreement’s dispute resolution process, which ultimately could lead to the imposition of retaliatory U.S. tariffs on imports from Canada.
A Canadian government official told Global News the U.S. move was not concerning or a surprise.
“This is just part of our longer, ongoing conversation with the Americans about the DST,” said the official, who spoke on background.
The U.S. has been critical for months of the new tax, which puts a three per cent levy on foreign tech giants that generate revenue from Canadian users.
Many of those companies — including Netflix, Apple, Google and Amazon — are based in the U.S., which has prompted Tai and other American officials to call the tax “discriminatory.”
The Liberal government first promised the tax as part of their 2019 election platform but had delayed implementing it amid global efforts to build a broader, international tax plan.
That international effort, meant to address what the OECD said were “tax challenges arising from the digitalisation of the economy,” was meant to reach an agreement by this past June for a baseline tax on companies that generate revenue from countries where it has no presence. However, the talks have stalled over technical details.
Canada enacted its digital services tax shortly before the OECD deadline of June 30. The tax is retroactive to 2022.
Tai said in her office’s announcement Friday that she will “continue to support” the U.S. Treasury Department in negotiations with the G20 and OECD “to bring a comprehensive solution to the challenge of DSTs.”
A joint statement from Deputy Prime Minister and Finance Minister Chrystia Freeland and International Trade Minister Mary Ng on Friday reiterated its support for “international efforts to end the corporate tax race to the bottom and to ensure that all corporations, including the world’s largest corporations, pay their fair share wherever they do business.”
The two ministers called the trade dispute consultations requested by the U.S. “an appropriate forum to allow for further dialogue.”
“These consultations are a reflection of the unique and collaborative economic partnership between Canada and the United States and we look forward to demonstrating how Canada is meeting its trade obligations,” the statement said.
Other countries like the United Kingdom, France, India and Italy have had digital services taxes in place for years, and Freeland said in June it was “not fair” for Canada to keep waiting for international talks to reach a conclusion.
The Canadian government official noted multiple deadlines have come and gone that Canada sought to adhere to before going forward with its tax.
The U.S. has suspended retaliatory tariffs against seven countries that have imposed digital services taxes, including Britain and France, amid the ongoing global negotiations.
The topic of the digital services tax came up during a meeting between Ng and Tai in Washington, D.C., on Thursday, Ng’s office said.
During their sitdown, Tai “raised concerns with Canada’s Digital Services Tax, which Minister Ng defended as fair, non-discriminatory and consistent with Canada’s international trade obligations,” according to a readout of the meeting Thursday.
The Canadian government official told Global News Freeland has also had conversations with U.S. Treasury Secretary Janet Yellen and the White House.
“This is just one small disagreement in a very, very positive relationship,” the official said.
—With additional files from Global’s Nathaniel Dove, the Canadian Press and Reuters