A prominent business lobby group is warning the Trudeau government about the pending damage to U.S. trade relations that will be caused by the digital services tax Ottawa imposed on its largest trading partner.
The Business Council of Canada called for the Liberals to revoke the digital services tax in the wake of the U.S. Trade Representative Office requesting dispute settlement consultations under the Canada-U.S.-Mexico trade agreement.
The council’s president and chief executive Goldy Hyder said that retaliatory measures by the U.S. would hurt Canadian businesses, the economy, and ultimately families in a letter to Finance Minister Chrystia Freeland and International Trade Minister Mary Ng on Thursday.
Hyder also warned of the impacts the tax would have on Canada’s relationship with the U.S. as the CUSMA trade agreement will be up for review in 2026.
“In successive meetings with senior U.S. officials, we have been repeatedly told that if Canada’s unilateral DST remains in place it will imperil the upcoming mandatory review of the CUSMA,” wrote Hyder.
Several U.S. companies have been critical of the 3% levy on foreign tech giants, with many claiming that it will lead to increased costs for Canadian consumers.
Federal Director of the Canadian Taxpayers Federation, Franco Terrazzano, told True North last month that other countries have imposed similar taxes, which only resulted in the cost of living becoming more expensive.
“Trudeau should be doing everything he can to make life more affordable, but this digital services tax will mean higher prices for ordinary Canadians,” said Terrazzano.
“The feds need to stop dreaming up new taxes and new ways to make life more expensive.”
For example, Google announced it will implement a 2.5% surcharge for ads displayed in Canada beginning next month and Canadian advertising groups have warned that other companies are likely to follow in its lead.
There is also the issue that the DST violates Canada’s commitments under CUSMA, regarding not treating U.S. businesses less favourably than Canadian ones, which is the reason that U.S. Trade Representative Katherine Tai initiated the dispute consultations last month.
If Canada and the U.S. are unable to resolve the issue within 75 days, the U.S. may call for a dispute settlement panel to examine the discrepancy.
Freeland and Ng remain committed to the tax, claiming that consultations under the trade agreement’s dispute mechanism will demonstrate Canada is still in line with its obligations.
However, Hyder argues that the federal government’s current stance will risk undermining the trade agreement and “our most important trade and investment partnership.”
According to former general counsel for the Office of the U.S. Trade Representative Greta Peisch, the U.S. has long held concerns about Canada’s approach to the digital services tax.
“I think the United States has been clear about how serious it is,” Peisch told the Financial Post. “The argument is not that you can’t have a DST, it’s just that it should be neutral and not be inconsistent with our trade agreement.”
“We have commitments in our trade agreements not to discriminate based on national origin among the trade agreement partners, that would be inconsistent with our trade obligations.”
