• Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
Economy

Canada’s Digital Services Tax is Unfair to the US — Congress Noticed

by June 18, 2025
by June 18, 2025

The One Big Beautiful Bill Act (OBBBA), intended to lower the tax burden for Americans and thus to stimulate growth, contains one provision that has caused much alarm in Canada — potentially imposing a punishing tax on Canadians who invest in US companies. Canadian individuals and entities could face increased US withholding tax rates of 30 percent or more on US-source dividends, interest, royalties, and capital gains on real estate. The financial implications are severe, conceivably gutting Canadian pension funds that are normally tax exempt.

Section 899 of the OBBBA, passed by Congress last month and currently before the Senate, is expressly designed to hurt investors from countries that impose what the legislation terms “unfair” foreign taxes. The OBBBA defines these taxes as those which are exclusively or predominantly applicable to non-resident individuals and foreign corporations or partnerships because of the application of revenue thresholds or exemptions that ensure that substantially all residents other than foreign corporations and partnerships supplying comparable goods or services are excluded. This language could hardly be clearer; it is an obvious reference to Digital Services Taxes (DSTs).

Canada instigated its DST last year, purportedly to address the concern that the world’s biggest tech companies do not pay their fair share of tax because they are able to locate their head offices in low tax jurisdictions while serving clients around the world. Canada’s DST applies to large businesses, ostensibly foreign and domestic, that meet both of two revenue thresholds: total global revenue of €750 million or more in a fiscal year; and greater than CA$20 million in earnings in Canada in the calendar year. The tax applies at a rate of three percent on profits over CA$20 million.

The DST disproportionately impact US companies, an unfortunate, if unintentional, consequence of outcome-based equity-minded policymaking. The US launched a complaint against Canada’s DST last August via the United States Mexico Canada Agreement (USMCA), the Services chapter of which prohibits discrimination between foreign and local services or services suppliers.

While it is arguable that Canada’s DST is indeed discriminatory against US companies, Canada could seek to raise a USMCA complaint of its own against the OBBBA withholding tax. The USMCA’s Investment chapter prohibits discrimination against foreign investors, with investment broadly defined to include shares in US companies and various other assets which would probably be caught by the Section 899 withholding tax.

In other words, Canadian legislation that violates an international treaty will be countered by US legislation which is illegal under the same treaty. The situation does not inspire much confidence in the two countries’ respect for international law. The respective taxes are yet more levers in an age of brazen unilateralism, not to mention trade protectionism.

Investors from Canada are not the only targets of the OBBBA. Many countries impose DSTs,  using identical wording based on the OECD model. OBBBA Section 899 goes on to state that

The Secretary shall issue … regulations or other guidance which list the discriminatory foreign countries … in guidance, … update such guidance on a quarterly basis… [and] exercise the authority to provide exceptions [emphasis added].

This leaves the door open for the US to impose higher withholding taxes on investors from certain countries, much as President Trump has done with tariffs, or to exempt some countries entirely. The variable application of the measure could therefore function as “leverage” in the broader bilateral trade negotiations. It was reputed that the UK’s DST would be eliminated as part of the US-UK “deal” finalized last month, the details of which remain unclear; apparently, however, this was not the case. Exempting the UK from the “unfair taxes” designation might be one aspect of the arrangement.

Canada’s DST will almost certainly feature in the USMCA’s renegotiation next year. If it keeps the DST, Canada would need to seek an exemption from the withholding tax.

All countries imposing DSTs would be wise to abandon them, as they generate little in the way of revenue, apparently, the UK’s DST is expected to yield around £800m per year. DSTs are ultimately passed on to consumers anyway, hardly a sensible policy in an era of high inflation. It is difficult to resist the conclusion that DSTs are largely symbolic — designed to give the appearance of fairness or to convey a sense of distribution of wealth that still appeals to some segments of the electorate. Ultimately, they are anti-growth, operating as a drag on economic activity and innovation.

By pressuring foreign countries to ditch their DSTs via the threat of tax retaliation, the OBBBA could actually end up spurring growth beyond US borders.

0 comment
0
FacebookTwitterPinterestEmail

previous post
Can Bureaucracy Love Science? ‘Bethesda Declaration’ Reveals NIH’s Culture Crisis
next post
Vance defends Gabbard as ‘critical part’ of Trump team after president dismissed Iran nuke threat comments

Related Posts

Fed Governor’s Labor Market Warning Validated by BLS...

August 5, 2025

How Unusual Was July’s Jobs Report Revision? Here’s...

August 5, 2025

No Return to the Old Balance Sheet, Fed’s...

August 5, 2025

‘1619 Project’ is Brazen Deception in the Service...

August 5, 2025

Tariffs Tanked GDP, Not Imports

August 5, 2025

‘1619 Project’ is Brazen Deception in the Service...

August 5, 2025

Tariffs Tanked GDP, Not Imports

August 5, 2025

GOP memo preps House Republicans to tout Trump’s...

August 5, 2025

Trump confirms 2 nuclear submarines are ‘in the...

August 5, 2025

Cornyn takes swing at James, Schiff with new...

August 5, 2025

Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.

By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

Recent Posts

  • Fed Governor’s Labor Market Warning Validated by BLS Revision

    August 5, 2025
  • How Unusual Was July’s Jobs Report Revision? Here’s What My Analysis Found

    August 5, 2025
  • IFCO and Identiv Form Strategic Partnership to Enhance Digital Traceability in the Global Fresh Grocery Supply Chain

    August 5, 2025
  • No Return to the Old Balance Sheet, Fed’s Waller Says

    August 5, 2025
  • ‘1619 Project’ is Brazen Deception in the Service of Statism

    August 5, 2025
  • Tariffs Tanked GDP, Not Imports

    August 5, 2025

Editors’ Picks

  • 1

    Meta executives eligible for 200% salary bonus under new pay structure

    February 21, 2025
  • 2

    Walmart earnings preview: What to expect before Thursday’s opening bell

    February 20, 2025
  • 3

    New FBI leader Kash Patel tapped to run ATF as acting director

    February 23, 2025
  • 4

    Anthropic’s newly released Claude 3.7 Sonnet can ‘think’ as long as the user wants before giving an answer

    February 25, 2025
  • 5

    Nvidia’s investment in SoundHound wasn’t all that significant after all

    March 1, 2025
  • 6

    Cramer reveals a sub-sector of technology that can withstand Trump tariffs

    March 1, 2025
  • 7

    Elon Musk says federal employees must fill out productivity reports or resign

    February 23, 2025

Categories

  • Economy (2,085)
  • Editor's Pick (206)
  • Investing (185)
  • Stock (1,394)
  • About us
  • Contact us
  • Privacy Policy
  • Terms & Conditions

Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Read alsox

Tariffs are Pushing Our Neighbors – and...

March 6, 2025

DOGE: Bringing Standard Business Scrutiny to Government

February 26, 2025

Klaus Schwab’s Departure Could Herald New (Spontaneous)...

May 6, 2025