Written by David Lawder
The Biden administration announced on Friday that the U.S. has initiated trade dispute settlement consultations with Canada regarding its new digital services tax. The administration stated that the tax is “discriminatory” and may be inconsistent with Canada’s obligations under the North American trade deal.
The U.S. Trade Representative’s office declared that it will collaborate with Canada to address U.S. concerns about the tax through consultations. If an agreement is not reached within 75 days, the U.S. may escalate the issue to a dispute settlement panel under the U.S.-Mexico-Canada Agreement (USMCA) on trade.
This request for consultations marks the initial step in the USMCA’s dispute resolution process, which could potentially result in the imposition of retaliatory U.S. tariffs on Canadian imports.
In response to the U.S. action, a Canadian government official in Ottawa mentioned that the challenge was not unexpected and is part of an ongoing dialogue between the two nations.
U.S. objections to the Canadian tax have been raised previously, with the USTR expressing concerns about its impact on U.S. companies. However, officials from the Canadian Finance and Trade Ministries were not available for immediate comment.
The USTR had also prepared retaliatory duties against other countries with digital services taxes, but these actions have been suspended as global negotiations continue on the taxation of multinational corporations.
U.S. Trade Representative Katherine Tai emphasized the opposition to discriminatory digital service taxes targeting U.S. companies. Tai highlighted ongoing support for global tax negotiations to address the challenges posed by such taxes.
