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The United States Concerned about Canada’s plans for a digital services tax

The Biden administration expressed concerns about Canada’s plans to move forward with the development of a tax on large technology companies, promising to review potential actions if the proposal is approved.

The Office of the U.S. Trade Representative is worried because most digital-services taxes, or DSTs, have been designed in ways that discriminate U.S. companies, spokesman Adam Hodge said in a statement Wednesday. “If Canada adopts a DST, USTR would examine all options, including under our trade agreements and domestic statutes.”

Canadian Finance Minister Chrystia Freeland presented legislation to implement the previously announced 3% tax on revenue earned by big companies from various digital services that rely on data and content contributions from Canadian users, such as social media platforms.

However, the tax would not be enforced until 2024, and only then if an international agreement pushed by the Organization for Economic Cooperation and Development wouldn’t apply by then. The OECD expects its two-pillar worldwide tax reform plan, which was approved by 136 countries in October, to take effect by 2023.

In the face of US opposition, Mark Agnew, a senior vice president of the Canadian Chamber of Commerce, stated Canada “doubled down” on the tax”.

Our government put down a marker saying we’re going ahead with this — and not only are we going ahead, but now here’s the draft legislation to how we’re going to go ahead, Agnew said by phone. I think the USTR felt the need to respond to that with its own public marker.

After Canada objected to U.S. electric car tax credits included in the $1.75 trillion Build Back Better Act currently before the US Senate, the tax issue adds to simmering trade tensions between the two countries. Canada has criticized the tax credit as a violation of the North American Trade Pact, claiming that it amounts to unraveling five decades of auto sector integration, and has threatened to retaliate.

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