U.S. trade groups raise alarm over Canadian digital services tax

[November 15, 2019] WASHINGTON (Reuters) - More than a dozen U.S. trade groups and the U.S. Chamber of Commerce on Friday urged the Trump administration to block a French-style digital services tax proposed by Canadian Prime Minister Justin Trudeau during October's election.

The groups said the tax would undermine U.S. investment in Canada's technology market and threaten Canada's compliance with commitments under the World Trade Organization, the North American Free Trade Agreement (NAFTA), and the United-States-Mexico-Canada Agreement (USMCA).

"We urge you to engage rapidly with your Canadian counterparts to discourage them from proceeding with this proposal," the groups wrote in a letter addressed to U.S. Secretary of State Mike Pompeo, Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and White House economic adviser Larry Kudlow.

Trudeau's Liberal party during the campaign proposed a digital services tax similar to a French plan which led to criticism and the threat of retaliatory tariffs by the United States.

France and the United States are still working out their differences over the tax, which U.S. officials say unfairly targets U.S. companies such as Facebook <FB.O>, Google <GOOGL.O> and Amazon <AMZN.O>.

The Liberals called for digital companies with worldwide revenues of at least C$1 billion and Canadian revenues of more than C$40 million to be subject to a new 3% tax on revenue generated through the sale of online ads and user data. The tax would take effect on April 1, 2020.

 A cyclist passes U.S. and Canadian flags placed side-by-side on the Eisenhower Executive Office Building next to the White House in Washington March 8, 2016. Preparations are under way for the official state visit of Canada's Prime Minister Justin Trudeau on Thursday. REUTERS/Kevin Lamarque

Trudeau is trying to form a minority government after the Liberals lost their majority in last month's election.

"We are concerned that the scoping of this proposal purposely targets, and would almost exclusively impact, U.S.-based companies," the Internet Association, Entertainment Software Association and other trade groups said.

"Global tax rules should be updated for the digital age, but discriminatory taxes against U.S. firms are not the right approach," they wrote in the letter.

The Canadian plan would also undermine new digital trade measures included in the USMCA trade agreement which was signed by the leaders of Canada, the United States and Mexico last year, the groups said. The agreement has been ratified by Mexico, but must still be approved by the legislatures of Canada and the United States.

(Reporting by Andrea Shalal; Editing by Grant McCool)

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