Peter Barnes Comments on Canada’s Proposed Digital Services Tax in Law360

Law360 Tax Authority

The U.S. government's threats of retaliatory trade measures in response to Canada's proposed digital services tax have drawn criticism from specialists, who say certain DSTs aren't inherently discriminatory and are a relatively feasible way for countries to tax revenue generated online.

. . .

Facing the failure of Pillar One, DSTs are going to be enacted widely, according to Peter Barnes of Caplin & Drysdale, who said the U.S. should accordingly urge countries to harmonize those measures and ensure that they don't single out large U.S. tech companies. To start a global trade war over what he called a version of a value-added tax is inappropriate and isn't likely to succeed, he said.

"I worry on DSTs, that with respect to Canada, U.S. companies and the U.S. government are climbing out on a limb that's going to get sawed off behind them," Barnes said.

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For Barnes, however, the U.S. rhetoric of retaliatory trade measures "could come back to haunt us" if the U.S. later tries to work with other countries on the harmonization of DSTs. While the U.S. might be understandably frustrated that Canada broke the timeline that others are following, the U.S. government's current response won't be helpful if Pillar One fails and countries start adopting DSTs toward the end of next year, he said.

"If we end up having to compromise in 2024 with DSTs of some flavor, then the rhetoric now is not helpful to that environment," he said.

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