The U.S. has requested trade dispute settlement consultations with Canada over its new digital services tax, the Biden administration said on Friday, adding that the “discriminatory” tax appears inconsistent with Canada’s North American trade deal obligations.
The U.S. Trade Representative’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 U.S.-Mexico-Canada Agreement on trade (USMCA).
The request for consultations is the first step in the USMCA’s dispute resolution process, which ultimately could lead to the imposition of retaliatory U.S. tariffs on imports from Canada.
USTR had previously readied retaliatory duties against seven other countries that had imposed digital services taxes (DSTs) – Austria, Britain, France, India, Italy, Spain and Turkey – but these have been suspended as global negotiations continue over the reallocation of taxing rights on large, multinational companies. This shift was meant to replace DSTs, but those talks have stalled over technical details.
USTR has found unilateral digital services taxes, largely aimed at collecting revenues from U.S. technology giants such as Alphabet’s Google, Apple, Amazon and Meta, to discriminate against U.S. companies.
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“The United States opposes unilateral digital service taxes that discriminate against U.S. companies. USTR is taking action today to address Canada’s discriminatory policies,” U.S. Trade Representative Katherine Tai said in a statement.
“As we pursue these consultations, we will continue to support the Department of the Treasury in the OECD/G20 global tax negotiations to bring a comprehensive solution to the challenge of DSTs,” Tai said.
Canada has yet to respond to the U.S. request. International Trade Minister Mary Ng’s office did not immediately respond to a request for comment.
Ng met with Tai on Thursday during a visit to Washington, D.C., to discuss bilateral trade issues.
During the meeting, 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,” Ng’s office said in a statement Thursday.
In Ottawa, a Canadian government official told Reuters the U.S. move was not concerning or a surprise. The official, who requested anonymity given the sensitivity of the topic, said the challenge was part of a conversation between the two nations.
—With additional files from Global News