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The Canadian Venture Capital & Private Equity Association (CVCA), alongside five major business groups, has called on Prime Minister Mark Carney to pause the collection of Canada’s Digital Services Tax (DST) ahead of the June 30 deadline. The call follows growing concerns that the United States plans retaliatory tax increases on Canadian investors in response to the DST, which targets large digital businesses generating over $20 million in revenue.
What is the Digital Services Tax?
The DST imposes a 3% tax on certain digital transactions including online marketplace sales, advertising, social media, and user data sales. Introduced last year, it primarily targets large foreign tech firms, especially those based in the US.
The US Retaliation Threat
The US government has proposed legislation under the “One Big Beautiful Bill Act” that would increase withholding tax rates on income linked to countries applying “unfair” taxes like the DST. This retaliation could hike Canadian withholding taxes on American-sourced income starting at 5%, increasing annually up to 20% for income tax and even higher for withholding taxes.
According to industry estimates, this could cost Canadian investors up to $81 billion in additional taxes over seven years, affecting pension funds, retirement plans, and investment funds with American holdings.
Industry Impact and Concerns
Matt Cohen of Ripple Ventures highlights the severe uncertainty this creates for cross-border ventures and financial institutions. Benjamin Bergen of the Council of Canadian Innovators stresses that while tech companies should pay fair taxes, the unilateral US tax hikes risk diverting capital away from Canada and hampering the scaling of globally competitive firms.
The letter co-signed by CVCA and other associations warns that the negative economic impacts of the DST-induced US retaliation could be significant, urging the government to reconsider and pause the DST.
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