Industry-Wide Opposition to the Digital Services Tax

Letter signed by business associations representing Canadian business

Right Honourable Mark Carney, P.C., M.P.

Prime Minister,

Your mandate letter outlines a clear and urgent plan for Canada: to build a single Canadian economy, strengthen our economic and security relationship with the United States, and reduce costs for Canadians. The Digital Services Tax (DST), the implementation of the Under-Taxed Profits Rule (UTPR)/Global Minimum Tax (GMT), and other discriminatory digital taxes run directly counter to all three of these priorities.

There can be no question that the DST increases prices for Canadian consumers. These costs are real and already have an impact on the Canadian economy. The unintended consequence of the DST and other digital taxes is that they have handed the US Administration a ready-made issue to rally support from U.S. lawmakers who are now working to retaliate. The latest related risk associated with this is section 899 in the U.S. Administration’s budget-enabling legislation.

Recently passed by the House of Representatives, if the Senate and the President sign Section 899 into law, the U.S. Administration could place an increased withholding and income tax of 5% in the first year, escalating by 5% each year to a maximum of 20% for income tax and up to 50% total for withholding tax, on any holding of an American asset by a Canadian or the U.S. operations of a Canadian-parented company. The negative impact of this measure cannot be understated for the Canadian economy. Every pension fund, retirement fund, investment account, and deeply interconnected investment funds with American holdings, held by the likes of teachers, municipal workers, elected officials, and regular everyday Canadian families, are at risk. Moreover, the U.S. operations of Canadian companies could see multiple additional taxes on their operations.

You have committed to redefining Canada’s commercial relationships and forging a stronger, more secure partnership with our most significant trading ally, the United States. That cannot be achieved if the Canadian government proceeds with its current timeline to collect a punitive, two-and-a-half-year retroactive tax on digital service companies on June 30th. The dire downstream effects of this are still avoidable.

We understand and respect the sensitive negotiations you and your government are immersed in right now with the U.S. Administration. A reasonable solution would be to pause the June 30th payment, allowing negotiations ahead of, and at the G7, to continue without the risk of further escalation by the administration on current tariff actions that place considerable risk on Canadian businesses and families.

The current political climate and associated risks to the Canadian economy could not have been foreseen when the DST was first introduced. There is still time to correct course and demonstrate that Canada is serious about strengthening alliances, improving competitiveness, and restoring affordability. The alternative will lead Canada down a very difficult path.

Agreed to by the following organizations:

• The Canadian Chamber of Commerce
• Canadian Life and Health Insurance Association
• Retail Council of Canada
• Canadian Venture Capital Association
• Future Borders Coalition
• Canadian Bankers Association

CC:

Hon. François-Philippe Champagne PC., MP

Hon. Dominic LeBlanc PC., MP

Hon. Melanie Joly PC., MP