By Paul Vieira
OTTAWA--Canada authorized the implementation of a digital-services tax, a move that threatens to trigger trade retaliation from Congress and the Biden administration.
A notice published late Wednesday indicated that the cabinet, led by Prime Minister Justin Trudeau, ordered the digital-services tax to be implemented June 28, or last Friday.
As a result, a 3% levy will apply to revenue from companies that provide digital services to Canadian users, or sell Canadian user data, and is retroactive to sales dating back to 2022.
U.S. officials, led by Trade Representative Katherine Tai, and members of Congress have repeatedly warned that enacting the digital-services tax would trigger trade retaliation from Washington.
Representatives from the U.S. Trade Representative office weren't immediately available for comment.
In a September 2023 letter to Tai, members of the House of Representatives' Ways and Means Committee said Canada's digital-services tax "would seriously harm American companies and workers," and pledged to work with the White House on trade sanctions targeting Canada.
The U.S. Chamber of Commerce has argued that Canada's digital tax would contravene Ottawa's obligations under both the U.S.-Mexico-Canada trade deal, known as USMCA, and the World Trade Organization.
"As we have warned the government repeatedly, this unilateral move puts our country at risk of retaliatory trade action from the United States, our most important trading partner. We urge the government to reconsider this decision," said Goldy Hyder, president of the Business Council of Canada, on Wednesday.
In its 2024 budget plan, Canada said the digital-services tax would generate revenue for the current fiscal year ending March 31, 2025, of about 2.3 billion Canadian dollars, or the equivalent of US$1.7 billion, and nearly C$6 billion over a half decade. The tax "will ensure digital businesses that monetize the data and content of Canadian users are paying their fair share," said Finance Minister Chrystia Freeland.
The dispute with the U.S. focuses on a global tax accord, agreed to in the fall of 2021, that represents changes to how, where and how much multinational companies are taxed around the world. That accord, which the Biden administration backs but has yet to be implemented, calls for countries to refrain from new digital taxes.
Canada signed on to the global deal with a caveat: If not implemented by the start of 2024, Canada would impose its own digital-service tax. Canada first came forward with its plan to tax technology companies in the fall of 2020, with the levy meant to apply on revenue recorded as of January 2022.
A spokeswoman for Canadian Finance Minister Chrystia Freeland said Ottawa had been clear that failure to implement the global tax accord would lead to a Canadian digital-services tax. "Unfortunately, despite best efforts, repeated deadlines to reach an international agreement have come and gone. We are committed to protecting Canada's national economic interest," the spokeswoman said.
"With this move, there is now a real risk of hundreds of millions of dollars in retaliatory tariffs that could target sensitive Canadian economic sectors," said Michael Geist, an internet-law professor at the University of Ottawa, and a critic of the Liberal government's digital policy. "Canada's digital policy is quickly emerging as a major trade irritant."
The digital tax isn't the only levy Canada intends to apply on big U.S. technology companies. Canada's broadcast regulator unveiled plans last month to compel foreign streaming services such as Netflix, Disney+ and Amazon Prime Video to fork over 5% of their Canadian sales to help fund local broadcast newscasts, and produce domestic video and audio content.
Digital Media Association, a Washington-based lobbying group for audio streamers such as Spotify, Apple and Amazon, has described the levy "a discriminatory tax" on its members, and warned that Canadian subscribers could face higher prices.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
07-04-24 0022ET
