US rumblings over Canada’s digital tax put business sector on alert

One of Canada’s most influential business lobby groups is warning Ottawa about damage to the relationship with the United States after the Biden administration escalated efforts to halt the federal government’s tax on large foreign digital services companies.

Hyder cautioned the tax could also be destructive to Canada’s relationship with the U.S. ahead of the review of the trade agreement in 2026. U.S. Trade Representative Katherine Tai, after requesting dispute consultations in August, called the tax discriminatory and said it is inconsistent with Canada’s commitments not to treat U.S. businesses less favourably than Canadian ones.

Hyder said Ottawa’s strategy will neither address nor assuage U.S. concerns. Instead it will risk undermining the trade agreement and “our most important trade and investment partnership,” he said. But after significant delays to that process at the Organization for Economic Co-operation and Development, Canada went ahead with its own tax.Greta Peisch, the former general counsel for the Office of the U.S. Trade Representative, said concerns around Canada’s approach to the tax have been raised for a long time.

Peisch said the issue is around global revenue. Canada’s tax applies to foreign and Canadian digital services providers that earn total annual revenue from all sources of 750 million euros or more, and annual Canadian revenue more than $20 million a year.

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