Freeland optimistic for ‘win-win outcome’ in digital sales tax dispute with U.S.

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Finance Minister Chrystia Freeland says she is optimistic about the prospect of avoiding U.S. retaliation over the implementation of Ottawa’s digital sales tax and that she cannot accept Canada being in an inferior position relative to other allies when it comes to taxing America’s digital giants.

The federal government authorized the DST, effective as of last Friday. The tax was first introduced in 2020 and imposes a three per cent levy on companies that provide digital services to Canadians and will be applied retroactively on revenue going back to 2022. News of the DST implementation was first reported by the Wall Street Journal.

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U.S. trade representative Katherine Tai and members of U.S. Congress have previously threatened trade retaliation if Canada were to go forward with the tax.

But Freeland said Thursday that Canada is engaged in conversations with U.S. counterparts to avoid this.

“Canada also has been and continues to be engaged in bilateral conversations with the United States about a win-win outcome for our two countries,” Freeland said during a press conference with reporters. “We believe that the way to achieve that is to negotiate in good faith, to negotiate creatively with our multilateral partners and with the U.S., and to also be strong.”

Freeland said that other U.S. allies, such as the United Kingdom, France and Italy, have already imposed DSTs of their own and have not been subjected to trade retaliation, and emphasized that Canada was being put in an unfair position.

“They are collecting revenue from international tech giants, and that is revenue they are using to invest in their people,” Freeland said. “I can’t accept Canada being in a discriminate position.”

Those three countries, however, are not part of the Canada-United-States-Mexico Agreement (CUSMA), and the U.S. has argued the DST violates the terms of that trade pact.

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Business groups in Canada have warned that the dispute could alienate Canada from its most important trading partner and will negatively impact Canadian consumers.

“The government should reverse its unilateral decision that is out of step with our allies, and instead, work with our trading partners on an international solution that would better serve Canadians,” said Robin Guy, vice president of government relations at the Canadian Chamber of Commerce, in a statement on Thursday.

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Canada had previously delayed its implementation of the DST in the hopes that a multinational agreement on the tax could be reached with other OECD countries. The two-pillared agreement still hasn’t been ratified.

“We have been very clear with the U.S., with our multilateral partners, about Canada’s position, and where Canada would need to go, absent a multilateral deal,” Freeland said.

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