The U.S. has taken a first step toward a potential challenge of Canada's
U.S. Trade Representative Katherine Tai has requested dispute settlement consultations with Canada under the United States-Mexico-Canada Agreement. If the countries can't resolve the matter through talks within 75 days, the U.S. may request a dispute settlement panel under the USMCA.
The tax is a 3% levy on the digital services revenue a company makes from Canadian users above C$20 million ($14.8 million) in a calendar year. It would apply only to companies with annual worldwide revenue of more than about C$1.1 billion.
It will mainly hit major U.S. firms, with Alphabet Inc. and Meta Platforms Inc. among those set to be impacted.
"The United States opposes unilateral digital service taxes that discriminate against U.S. companies," Tai said in a statement Friday, adding her office was taking action to address "Canada's discriminatory policies."
The tax came into effect in late June. It applies for calendar year 2024, with that first year covering taxable revenues earned since Jan. 1, 2022.
Finance Minister Chrystia Freeland had said Canada would not enact the tax if the Organization for Economic Co-operation and Development implemented a global tax treaty, but the U.S. has not yet ratified it.
Tai said Friday that as the U.S. pursues these consultations, it will continue to support the Treasury Department in negotiations led by the OECD to bring about a "comprehensive solution."
Canada cannot treat U.S. businesses less favorably than Canadian ones under the USMCA, Tai said, adding that Canada's digital tax seems inconsistent with that commitment.
