Canada: Announced US-Canada Consultations Under USMCA on Digital Services Tax

On 30 August 2024, the United States Trade Representative announced the initiation of dispute settlement consultations with Canada under the United States-Mexico-Canada Agreement (USMCA) concerning Canada's Digital Services Tax (DST), enacted as part of Bill C-59 on 20 June 2024. One of the most important changes included in the Act is that taxpayers are required to calculate and pay the DST on revenues earned from January 1, 2022, onward. This means that any relevant revenue from 2022 and 2023 is now subject to the 3% tax. The United States contends that Canada's DST discriminates against US companies, violating commitments under the USMCA's Cross-Border Trade in Services and Investment chapters by favouring Canadian businesses over US counterparts. If unresolved within 75 days, the United States may seek the establishment of a USMCA dispute settlement panel to further examine the issue.