Letter to Deputy Prime Minister and Finance Minister Chrystia Freeland regarding the implementation of Canada’s Digital Services Tax.
Dear Deputy Prime Minister,
Further to our letter of February 15, 2023, I am writing on behalf of the Business Council of Canada to express our concerns with the government’s decision to move ahead with the application of Canada’s unilateral digital services tax (DST) in contravention of the multinational agreement made at the Organization of Economic Co-Operation and Development (OECD) talks this week in Paris.
As we have argued previously, the unilateral imposition of a DST would open Canada up to retribution from our most important trading partner and ally, the United States. Several senior U.S. officials have made clear that if Canada is to impose its DST unilaterally, outside of a multinational framework agreement, they will seek dispute settlement under the Canada-U.S.-Mexico Agreement (CUSMA).
U.S. Trade Representative Katherine Tai raised the DST with International Trade Minister Mary Ng on the margins of the third meeting of the CUSMA Free Trade Commission in Cancun last week. To ignore the repeated appeals from senior officials in both the Biden Administration and Congress – Democrats and Republicans alike – is to risk retaliation and undermine the review of CUSMA in 2026.
As we noted in our earlier letter, because of the retroactive provision of your DST’s enabling legislation, a one or two-year delay in its implementation need not have a financial cost. Canada would retain all its options. If, however, the OECD negotiations are successful, Canada would not have to impose a unilateral DST, which you have made clear was your preference from the very outset.
The only course of action that exposes Canada to costly risks, as we have warned, is forging ahead with an acrimonious, arbitrary January 2024 deadline. That is the scenario which Canada must avoid. Canada should not impose a unilateral DST on either foreign or domestic companies before the OECD process has been allowed to run its course. All other OECD countries agree.
Given Canada is preparing to host the next North American Leaders’ Summit either later this year or in January 2024, the implementation of the DST at that same time could cast a pall over those proceedings. The timing would also coincide with the beginning of the U.S. election cycle, a period in which cross-border irritants such as the DST can become dangerously politicized by officials seeking election.
For these reasons we strongly urge you to reconsider.
Yours very truly,
c.c. The Honourable Mary Ng, P.C., M.P.
Minister of International Trade, Export Promotion, Small Business and Economic Development
Global Affairs Canada
Mr. Rob Stewart
Deputy Minister of International Trade
Global Affairs Canada
Mr. Nick Leswick
Interim Deputy Minister
February 12, 2024
February 5, 2024