US trade groups raise alarm over Canadian digital services tax

Reuters . Washington | Published: 00:00, Nov 16,2019

 
 

A file photo shows a cyclist passing US and Canadian flags placed side-by-side on the Eisenhower Executive Office Building next to the White House in Washington. Preparations are under way for the official state visit of Canada’s prime minister Justin Trudeau on Thursday. — Reuters photo

More than a dozen US trade groups and the US Chamber of Commerce on Friday urged the Trump administration to block a French-style digital services tax proposed by Canadian prime minister Justin Trudeau during October’s election.

The groups said that the tax would undermine US investment in Canada’s technology market and threaten Canada’s compliance with commitments under the World Trade Organisation, the North American Free Trade Agreement (NAFTA), and the United-States-Mexico-Canada Agreement (USMCA).

‘We urge you to engage rapidly with your Canadian counterparts to discourage them from proceeding with this proposal,’ the groups wrote in a letter addressed to US secretary of state Mike Pompeo, treasury secretary Steven Mnuchin, commerce secretary Wilbur Ross, US trade representative Robert Lighthizer and White House economic adviser Larry Kudlow.

Trudeau’s Liberal party during the campaign proposed a digital services tax similar to a French plan which led to criticism and the threat of retaliatory tariffs by the United States.

France and the United States are still working out their differences over the tax, which US officials say unfairly targets US companies such as Facebook, Google and Amazon.

The Liberals called for digital companies with worldwide revenues of at least C$1 billion and Canadian revenues of more than C$40 million to be subject to a new 3 per cent tax on revenue generated through the sale of online ads and user data. The tax would take effect on April 1, 2020.

Trudeau is trying to form a minority government after the Liberals lost their majority in last month’s election.

‘We are concerned that the scoping of this proposal purposely targets, and would almost exclusively impact, US-based companies,’ the Internet Association, Entertainment Software Association and other trade groups said.

‘Global tax rules should be updated for the digital age, but discriminatory taxes against US firms are not the right approach,’ they wrote in the letter.

The Canadian plan would also undermine new digital trade measures included in the USMCA trade agreement which was signed by the leaders of Canada, the United States and Mexico last year, the groups said. The agreement has been ratified by Mexico, but must still be approved by the legislatures of Canada and the United States.

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