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US lawmakers oppose taxes on Canada’s digital services

Lawmakers in the United States voiced opposition to proposed taxes on digital services in Canada.

This digital services tax (DST) would subject US tech companies to a 3% tax on annual income in Canada, a tax that will not apply to their Canadian competitors.

“This discriminatory tax involves numerous treaty commitments between Mexico, the United States and Canada (USMCA) and erodes confidence in the OECD/G20 global tax agreement announced in October 2021,” warned Kevin Brady, Republican leader of the Ways and Means Committee of the United States House of Representatives.

For Senators Ron Wyden, chairman of the United States Senate Finance Committee, and Mike Crapo, the TUSMCA promised to improve opportunities for U.S. innovators in the digital industry, but Canada’s proposed tax on digital services would subject these companies to specific discriminatory taxes.

Canada’s actions imply not only its obligations under the USMCA, but also its commitments made as part of the G20 and the Inclusive Framework in the multilateral agreement on international taxation.

Under the terms of this agreement, 137 countries agreed to refrain from enacting new unilateral measures while the global tax agreement is implemented for the next two years.

Digital services

“Canada’s efforts to move forward with a unilateral DST risk setting a worrying precedent that could undermine years of work by negotiators at the OECD,” Wyden and Crapo said.

Both Brady, on the one hand, and Wyden and Crapo, on the other, sent letters to Katherine Tai, the White House Trade Representative (USTR), in which they expressed those concerns.

On December 15, 2021, the USTR said it would examine all options under USMCA and national laws to address the matter.

The USTR must be prepared to use these measures if Canada implements a DST in violation of these commitments.

On the other hand, Mexico has proposed quotas for audiovisual content that require that a certain percentage of that content be domestically produced.

“Such a policy would impede market access for US content providers and could conflict with the obligations of the USMCA,” added Wyden and Crapo.

 

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