Trade War Bait, Digital Services Tax, Expected to Hit January 1st, Pull in $7.2 Billion

Canada’s Digital Services Tax is expected to hit next year. The US has threatened trade sanctions in response.

Canada could be embroiled in a trade war with the United States as early as next year. Canada has been pushing a so-called Digital Services Tax on the American platforms. The push has earned the ire of the American government who has long pointed out that such actions are discriminatory against American businesses. In response, the US has warned Canada against this… and warned againand againand again. Unfortunately, those warnings have seemingly fell on deaf ears as the Canadian government continues to ignore those warnings.

So, in a bi-partisan letter to the USTR (United States Trade Representative), US Senators called for trade retaliation should Canada actually move forward with this.

The question is, when will Canada spark this trade war? Well, according to the Canadian Parliamentary Budget Officer (PBO), that could happen at the start of the new year. What’s more, the PBO says that they expect to see the tax scheme pull in $7.2 billion. From the PBO:

The Budget 2023 confirms the government’s intention to implement a Digital Services Tax (DST) as of 1 January 2024, with retroactive effect to 1 January 2022 if Canada does not reach a multilateral agreement on the taxation of digital services.

The DST would apply to businesses (on a consolidated group basis) with annual worldwide revenues from all sources of €750 million and more, as well as annual Canadian digital services revenue greater than CA $20 million.

Taxable Canadian Digital Services Revenue Categories:

  • Canadian online marketplace services
  • Canadian online advertising services
  • Canadian social media services; and,
  • Canadian user data services

The DST would be equivalent to 3% of Canadian digital services revenues in excess of CA $20 million in a calendar year.

The PBO estimates the DST will increase federal government revenues by CA $7.2 billion over five years.

So, I guess Canada is starting a trade war with the United States next year. Adjust your investments accordingly because the Canadian governments belligerence is showing no signs of slowing down.

(Via @MGeist)

Drew Wilson on Twitter: @icecube85 and Facebook.

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