Letters October 12, 2023

Aligning Canada with the multilateral approach to the digital economy

Goldy Hyder – President and Chief Executive Officer, Business Council of Canada

Canada’s Place in the World Economic Strategy North America Taxation

Letter to The Honourable Chrystia Freeland, P.C., M.P., Deputy Prime Minister and Minister of Finance regarding the new developments in the multilateral OECD/G20 negotiations.

Dear Deputy Prime Minister,

Today the OECD/G20 Inclusive Framework released the text of a new multilateral convention addressing the international taxation of digital services. This is a sufficiently significant development that, pending final negotiations, the Government of Canada should immediately commit to deferring indefinitely, if not discarding entirely, its contentious unilateral digital services tax (DST).

Section 123(2)(b) of the draft Digital Services Tax Act your department circulated this past August expressly provides the option of deferring the implementation of the DST in consideration of “Canada’s preference for a multilateral approach to addressing tax challenges arising from the digitization of the economy and the status of international negotiations in respect of such an approach.”

As I have written to you previously, Canada’s business leaders are very concerned any retaliatory trade action by the U.S. in response to a unilateral tax will undermine our economy and further complicate the mandatory review of the CUSMA in 2026. Senior congressional officials have recently written to U.S. Trade Representative Katherine Tai asking her to detail the promised retaliatory action the Biden Administration would take if Canada were to implement its unilateral tax.

The first letter was sent to Ambassador Tai last month from 41 members of the House of Representatives, both Republicans and Democrats, on the Ways & Means Committee. The second letter was sent just yesterday by the Democrat Chairman and Republican Ranking Member of the U.S. Senate Finance Committee. These letters follow comments by U.S. Ambassador David Cohen that the U.S. would have “no choice but to take retaliatory measures in the trade context.”

We hope and trust you will take the earliest possible opportunity to confirm that Canada will not proceed with a unilateral digital services tax in light of today’s developments in the multilateral OECD/G20 negotiation process.

Yours very truly,