Republicans on the U.S. House Ways and Means Committee urged the Biden administration to initiate a federal investigation into Canada’s digital services tax (DSTs), a 3-percent levy that applies to revenue from companies that provide digital services to Canadian users or that sell Canadian user data.
“The United States cannot permit trading partners to levy taxes that uniquely target our firms and workers,” the 25 members wrote in a July 11 letter sent to U.S. Trade Representative (USTR) Katherine Tai. “It is time for this administration to make clear that the United States will defend our interests by immediately initiating an investigation of Canada’s DST under Section 301 of the Trade Act of 1974.”
Canada on June 19 enacted its DST despite concerns expressed by Congress, USTR, and the U.S. Treasury Department, according to the letter, which is led by House Ways and Means Committee Chairman Jason Smith (R-MO) and House Ways and Means Trade Subcommittee Chairman Adrian Smith (R-NE). It is signed by every Republican on the committee.
“The time has come to make clear to Canada’s political leadership that the United States is done examining options and will act decisively to protect American workers, small businesses, and innovators,” wrote the lawmakers, who said they do support continued engagement with the Government of Canada regarding implementation of the DST.
But to date, talks have been ineffective, they noted, and Canada hasn’t changed course.
“We strongly urge you to make clear that unilateral and discriminatory DSTs are unacceptable and immediately initiate an investigation under Section 301,” they wrote. “A weak response from the Biden administration will harm American interests, lead to a proliferation of similar measures, and allow Chinese companies to gain a foothold in the markets of our closest trading partners.”
The Republicans cited clear precedent for the use of Section 301 to combat DSTs, including actions taken by USTR during the Trump administration.
“In fact, thanks to aggressive action by the prior administration, between 2019 and 2021, USTR investigated the harmful DSTs implemented by other countries, creating a path for USTR to respond quickly in this instance,” wrote the members. “Without swift action, the United States will not be ready to immediately retaliate when Canada’s discriminatory DST is applied. This is especially concerning because of the potential retroactive application of the DST.”