Letter to Minister Anand Regarding Canada’s Unilateral Digital Services Tax Proposal

On June 6, 2024, the Canadian Chamber of Commerce sent a letter to the Honourable Anita Anand, President of the Treasury Board, expressing our continued concern with Canada’s intentions to press ahead with a unilateral Digital Services Tax (DST) that will hurt Canadian consumers and businesses by increasing the costs of doing business in an already precarious economic climate.

The letter underscored that the DST contradicts Canada’s commitments to the OECD/G20 Inclusive Framework on BEPS, undermines the Canada-U.S. trading relationship, and could destabilize both the Canadian market and international tax environment.

Read the full letter below.

June 6, 2024

The Honourable Anita Anand, P.C., M.P.
President of the Treasury Board 
House of Commons
Ottawa, ON K1A 0A6

RE: Canada’s Unilateral Digital Services Tax Proposal

Dear Minister:

On behalf of the Canadian Chamber of Commerce, I am writing to express our continued concern with Canada’s intentions to press ahead with a unilateral Digital Services Tax (DST) that will hurt Canadian consumers and businesses by increasing the costs of doing business in an already precarious economic climate.

Deepening bilateral trade and regulatory cooperation is of particular importance as we approach the coming review of the Canada-United States-Mexico Agreement (CUSMA) in 2026. As Canada and the United States engage in cooperative efforts to find solutions to common bilateral irritants that may be obstacles to a smooth CUSMA review process, the DST remains an acute concern. 

The Canadian Chamber of Commerce represents a variety of businesses with significant investments in Canada and supply chains that straddle the border. We continue to hear from businesses beyond digital services and across the breadth of the about the direct impact of this proposed tax and the potential for damaging trade retaliation.

Moving forward with Canada’s current DST proposal would not only directly undermine the Canada-U.S. trading relationship, but also run counter to Canada’s commitments to the OECD/G20 Inclusive Framework on BEPS and longstanding multilateral approach on related issues.

Canada’s go-it-alone approach to impose a DST would not only result in discrimination against U.S. companies, but it would also contravene Canada’s obligations under both the Canada-U.S.-Mexico Agreement (CUSMA) and the World Trade Organization (WTO).

Additionally, Canada’s DST proposal looks remarkably similar to France’s DST, which the U.S. Trade Representative has ruled to be a “discriminatory” tax and actionable under Section 301 of the Trade Act of 1974.

The U.S. Government has been clear and consistent in its opposition to the DST proposal. Most recently, this has occurred through engagements by U.S. Trade Representative Katherine Tai and U.S. Secretary of the Treasury Janet Yellen, and strong bipartisan, bicameral letters from U.S. Members of Congress. U.S. Ambassador to Canada, David Cohen, has already warned that should Canada implement a DST, the U.S. will have no choice but to take retaliatory measures. Our members have long supported a healthy Canada-U.S. trading relationship that supports economic growth and prosperity across Canada, and amid uncertain economic times, we cannot afford to put that relationship at risk.

Even if it were possible to set aside the DST’s implications for the OECD/G20 Inclusive Framework’s two-pillar solution or CUSMA, Canada’s DST proposal diverges in harmful ways from long-standing international tax principles that support the ability of companies to conduct business globally. For example, the proposal would impose a tax on gross revenue, target globally engaged companies, apply tax liability without regard to permanent establishment, and yield double or multiple taxation.

The Canadian proposal also includes instances of retroactivity, with the Digital Services Tax Act proposing to make the new tax retroactive from 2022. This measure is not only contrary to long-held taxation norms, it will be seen as especially punitive and provocative. This is simply not in Canada’s interest.

These attributes would not only create instability and uncertainty in the Canadian market but contribute to the destabilization of the international tax environment. The enactment of a Canadian DST also risks inspiring further proliferation of DSTs that will capture the activities of Canadian-headquartered companies engaged abroad, as other governments may follow Canada’s example in adopting unilateral, gross revenue-based tax measures but with broader and overlapping scopes that subject Canadian companies to unprincipled taxation.

Given the time needed to finalize, ratify, and implement Pillar One, we encourage you to support the extension of the DST standstill agreement within the OECD/G20 Inclusive Framework. We remain concerned that any new DST would undermine the possibility of concluding a multilateral agreement through the OECD/G20 Inclusive Framework, which would exacerbate ongoing tax and trade tensions while creating new uncertainty and instability for the economy.

Finally, at a time when Canadians are facing an affordability crisis, this new tax would make life more expensive. If implemented, a DST would force Canadian businesses and consumers to pay more for online services as well as other services which rely on digital advertising platforms. The example of France’s equally punitive DST demonstrates that costs will inevitably trickle down to consumers, causing an estimated 2-3 percent price increase in services consumed. Ultimately, a DST would indirectly burden ordinary citizens as they grapple with rising costs of living. These issues are of particular importance to the business community as they are a pivotal feature for restoring stability within the international tax framework and improving affordability for Canadians.

To ensure the certainty and stability that business operating in Canada need, and to maintain healthy Canada-U.S. trade dynamics, we respectfully urge Canada to withdraw its Digital Services Tax Act proposal and fully support the OECD/G20 Inclusive Framework’s multilateral project. At the very least, alleviating significant concerns around retroactivity by making the DST effective as of the date of royal assent of legislation to reduce trade irritants and allow businesses the certainty they need to adapt their fiscal plans.

Sincerely,

Robin Guy
Vice President and Deputy Leader, Government Relations
Canadian Chamber of Commerce

Jessica Brandon-Jepp,
Senior Director, Fiscal & Financial Services Policy
Canadian Chamber of Commerce