US requests trade dispute consultations with Canada over new digital services tax

The US has requested trade dispute settlement consultations with Canada over its new digital services tax, the Biden-Harris administration said on Friday, adding that the "discriminatory" tax appears inconsistent with Canada's North American trade deal obligations.

The US Trade Representative's office said in a statement that it will work with Canada to resolve US concerns over the new tax enacted in June, through the consultations. But if an agreement cannot be reached after 75 days, it may request a dispute settlement panel under the US-Mexico-Canada Agreement on trade (USMCA).

The request for consultations is the first step in the USMCA's dispute resolution process, which ultimately could lead to the imposition of retaliatory US tariffs on imports from Canada.

USTR had previously readied retaliatory duties against seven other countries that had imposed digital services taxes (DSTs) - Austria, Britain, France, India, Italy, Spain and Turkey - but these have been suspended as global negotiations continue over the reallocation of taxing rights on large, multinational companies. This shift was meant to replace DSTs, but those talks have stalled over technical details.

USTR has found unilateral digital services taxes, largely aimed at collecting revenues from US technology giants such as Alphabet's Google, Apple, Amazon.com and Meta, to discriminate against US companies.

"The United States opposes unilateral digital service taxes that discriminate against US companies. USTR is taking action today to address Canada's discriminatory policies,” US Trade Representative Katherine Tai said in a statement.

"As we pursue these consultations, we will continue to support the Department of the Treasury in the OECD/G20 global tax negotiations to bring a comprehensive solution to the challenge of DSTs," Tai said.