Canada is taking the wrong road on digital tax, say LaHood, colleagues

U.S. Rep. Darin LaHood (R-IL), co-chair of the Digital Trade Caucus, joined a bipartisan group that included members of the U.S. House Ways and Means Committee to disapprove of Canada’s decision to impose a digital services tax (DST) that they say could “seriously harm” American companies and workers.

“We urge you to impress upon your counterparts in Canada that its unilateral approach is discriminatory and, if enacted, could face significant consequences,” wrote the lawmakers in a Sept. 19 letter sent to U.S. Trade Representative Katherine Tai and U.S. Treasury Secretary Janet Yellen.

Rep. LaHood and his colleagues are disappointed that Canada is moving against approval by all 140 economies participating in the Organization for Economic Cooperation and Development of a one-year extension of the moratorium on DSTs through Dec. 31, 2024, according to their letter.

“The proposed three percent DST included in Canada’s budget would apply retroactively to Jan. 1, 2022,” Rep. LaHood and his colleagues wrote. “Canada’s unusually aggressive and discriminatory approach would target U.S. companies and workers who would disproportionately bear the burden of this new tax. 

“Further, Canada’s approach raises serious questions about its obligations under the United States-Mexico-Canada Agreement and the World Trade Organization Agreement,” they added.

Among the 40 lawmakers who joined Rep. LaHood in signing the letter were U.S. Reps. Vern Buchanan (R-FL), Ron Estes (R-KS), Randy Feenstra (R-IA), Brian Fitzpatrick (R-PA), Mike Kelly (R-PA), Carol Miller (R-WV), Blake Moore (R-UT), Adrian Smith, (R-NE), Lloyd Smucker (R-PA), Michelle Steel (R-CA), Brad Wenstrup (R-OH), and Bill Pascrell, Jr. (D-NJ).

The members echoed the Biden administration’s message that Canada should drop its proposed tax, and they “strongly encouraged” the Biden administration to work with Congress on action to safeguard America’s economy and to challenge Canada’s “unfair practices,” including through U.S. trade agreements and domestic trade statutes, they wrote.

“Given our prolific trading relationship with Canada, its retroactive DST proposal would be especially damaging to U.S. industry and workers,” Rep. LaHood and his colleagues wrote, noting that the Biden administration pushed to extend the moratorium on DSTs to allow more time for negotiations on a multilateral convention addressing the establishment of taxing rights for market jurisdictions. 

“If Canada chooses to proceed with its DST despite this moratorium, that choice would be risky and may damage bilateral relations with its largest trading partner,” the members wrote. 

The lawmakers asked Yellen and Tai for an update by Oct. 3 on their efforts to ensure Canada does not enact a DST “or any other discriminatory unilateral measure.”