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1 1 (January 6, 2025)

handle is hein.crs/goverxh0001 and id is 1 raw text is: Canada's Digital Services Tax Act: Issues Facing Congress Updated January 6, 2025 In June 2024, the Canadian government enacted Bill C-59, which included a 3% digital services tax (DST)-retroactive to January 1, 2022-on certain revenue of large digital services providers active in, for example, online marketplaces, online advertising, social media platforms, and the sale or licensing of user data. Some Members of Congress have expressed concerns that Canada's DST discriminates against U.S. firms and have urged the Biden Administration to consider retaliatory trade measures. The United States is home to several ofthe world's largest digital services providers (e.g., Meta, Netflix), which are a large and fast-growing segment of the U.S. economy, with $213 billion of revenue and 278,000 workers in 2024. Revenue for social networking sites is expected to increase by 18% from 2024 to 2025. Digital services providers are to register with the Canadian Revenue Agency by January 31, 2025, and make their first tax payments by June 30, 2025. Background and Scope of the DST In addition to Canada, 18 other countries have implemented DSTs. DSTs differ from existing corporate income taxes on multinationals. DSTs are taxes on revenue derived from the sale of digital goods and services in the jurisdiction imposing the tax. The existing global tax regime taxes multinationals' profits (revenue adjusted for expenses) in the country in which the income is earned and, in some instances, the country in which a parent firm is headquartered. Proposals for DSTs are increasingly common in part because they allow governments to tax multinationals providing digital services even ifthe firm does not generate income through the ownership of assets in their jurisdiction. In October 2021, members of the Organization for Economic Co-operation and Development (OECD)/Group of 20 (G20) Inclusive Framework, including the United States and Canada, agreed on a plan to update the global tax system to address profit shifting and develop an international digital tax framework. In July 2023, 138 out of 145 Framework members agreed to hold off on imposing DSTs until at least 2025 to allow for additional negotiations. Canada objected, stating that it would not support a DST moratorium without a firm and binding timeline for Framework implementation. Canada's DST entered into force on June 28, 2024, and applies to foreign and Canadian digital services providers that earn (1) total annual revenue from all sources of 750 million euros ($815 million USD) or Congressional Research Service https://crsreports.congress.gov IN12399 CRS INSIGHT Prepared for Members and Committees of Congress

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