U.S. Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and Chair Ron Wyden (D-Oregon) called on U.S. Trade Representative (USTR) Katherine Tai to make clear the United States will forcefully defend American employers against the discriminatory taxes being proposed by Canada.
Canada is moving forward with a 3 percent tax on large digital services companies, which would be levied almost exclusively on American companies. It goes into effect in 2024, but in an unusually punitive design, is retroactive to 2022.
“We appreciate you previously noting that ‘[i]f Canada adopts a [digital services tax, DST], USTR would examine all options . . . .’ Regrettably, Canada’s political leadership has not been dissuaded. You must now make clear that your office will immediately respond using available trade tools upon Canada’s enactment of any DST. When you take these steps, you will do so with our full support,” said Crapo and Wyden.
Allowing Canada to target American companies with discriminatory taxes that companies from other nations do not have to pay risks putting all American employers at a competitive disadvantage.
“As we noted, we want the strong economic relationship between the United States and Canada to continue growing. That will become immensely challenging, however, if Canada subjects innovative American companies to arbitrary discrimination without facing any consequences,” the senators wrote.
The bipartisan Finance Committee leaders have repeatedly called on the executive branch to fight back against foreign countries that are increasingly targeting American companies with digital service taxes.
Read the full letter to Ambassador Tai here.
3 comments on “USTR Must Tell Canada The U.S. Will Fight Discriminatory Digital Services Taxes On American Companies”
While appreciating that this post is “news reporting”, it’s important to point out that Senators Wyden and Crapo are demonstrating U.S. hypocrisy (and possible ignorance about the issue(s)) on a shocking level.
A few points …
1. The US via its citizenship tax system imposes income taxation (through Canadian residents with dual citizenship) on the profits of Canadian corporations. (The Senators are complaining about Canada imposes taxes on U.S. companies)
2. The letter specifically complains about the “retroactivity” of the tax. OMG, this coming from the country that imposed – via the US Transition Tax AKA MRT) – tax on the 31 years of the profits of Canadian corporations!! Hello!! If this isn’t retroactive it’s impossible to imagine that anything could be retroactive.
3. The U.S. is claiming that its wrong for Canada to impose taxes on profits earned by U.S. companies based on revenue received from Canadian residents. I would point out that this is a legal claim which is based (presumably) on Article VII and V of the Canada/US tax treaty. These articles prohibit Canada from imposing income taxes on the corporation’s profits that are not attributed to the a “permanent establishment” in Canada. Fine, but this is based on principles imposed in tax treaties from (are you ready for this) almost 100 years ago – prior to the digital world. Canada has every legal right to impose DSTs (which are not income taxes). The US hubris (suggesting that somehow the USA is on the right side of the moral issue) and threatening unspecified retaliation is really offensive. (Reminding me of Congressman Brian Higgin’s object to Canada’ Underused Housing Tax – while Florida does the same thing to Canadians)
4. And finally, presumably part of the US objection is that the issue of DSTs is intended to be addressed in Pillar1 of the new International tax rules. I would point out that while the USA took a lead role in pressuring other countries to sign on to Pillar 1 and Pillar 2, the US has NOT to date implemented these changes. In fact, Chairman Smith (of Ways and Means Fame is signalling that the US will NOT sign on.) In other words, the USA is (1) not signing on to Pillar 1 or Pillar 2 and is expecting other countries to behave as though (forgoing DSTs) it actually has.
Conclusion:
This letter from Senators Wyden and Crapo exhibits such a level of hypocrisy, (likely) ignorance and disregard for US (possible) obligations under the new International Tax rules, that the time has simply come presume that multi-lateral obligations (as is demonstrating by FATCA) will not include the USA.
Finally, could somebody offer a single reason to me that could explain:
How its somehow okay for US companies to access the purchasing power of the residents of other countries, profit by selling them products in those countries, and then refuse to allow the governments of those countries to share in the profits?
Perhaps ask Senators Wyden and Crapo if they would join the discussion on this site.
John,
We will ask the Senators for their response. I thought we would receive a well researched perspective on the Canada side since you are a legendary and much appreciated expert on this topic! With taxpayers about to be hit with an astonishing 7 TRILLION TAX Bill from the Biden administration to raise revenue, we better all become more aware!
Kat Jennings, CEO
http://www.taxconnections.com
More on this issue discussing the relationship between Pillar 1 and DSTs …
See excerpts from this October 16/23 article from Politico. My prediction is that the USA will NEVER sign on to the new rules of International Tax (Pillar 1 and Pillar 2) precisely because they are MULTILATERAL agreements which would obligate the USA to comply with obligations to every other signatory. As is exhibited the by the FATCA IGAs the US prefers bilateral agreements to multilateral (example CRS) agreements. See the following excerpts for why DSTs are therefore appropriate.
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“LUXEMBOURG — The U.S. will not be ready by this year to add its signature to a treaty that’ll pave the way for a global levy on the world’s 100 richest companies that aims to prevent corporates from engaging in international tax tourism, U.S. Treasury Secretary Janet Yellen said Monday.” …
“The U.S. will conduct a consultation on the multilateral treaty with all relevant stakeholders for two months, Yellen said. She added it is critically important for a treaty of “this level of importance and complexity” to be shown to the American public, and for Congress and the business community “to hear what their reactions are and to ensure that we have public support.”
But failing the year-end deadline could see governments across the world begin introducing national digital taxes against those tech companies, triggering retaliation from Washington and unleashing trade tensions.”
https://www.politico.eu/article/janet-yellen-us-not-ready-to-sign-global-tax-treaty/
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