A controversial tax brought by President Donald Trump’s administration could cost Canadians and Canadian businesses billions of dollars, and could also cost the U.S. government.
According to the assessment, this could also cause losses to U.S. companies by prompting investors from tax-related countries to move investments from the U.S.
Section 899 of Trump's A Large Bill Act, known as the “revenge tax”, requires the new withholding tax to be collected to investment income paid by U.S. companies and to investors living in U.S. countries.
Canada's digital service tax taxes Canadian users' incomes levied companies such as Amazon, Google, Meta, Uber and Airbnb, one of the taxes that the United States considers discriminatory.
Senior Canadian officials privately acknowledged that they were concerned about the prospect of Trump’s new withholding tax and were closely watching what was happening in Washington — as did Canadian investors, companies, investment advisers and tax lawyers.
Digital Service Tax for Crosshairs
Federal Finance Minister François-Philippe Champagne said he was using the tax as the first big payment on June 30.
“DST has taken effect and it will be applied,” he told reporters on Parliament Hill last week.
Currently, two different versions of Section 899 are in front of Congress, but both versions have hit Canadians and Canadian companies with new withholding taxes.
The version adopted by the House will take effect quickly and impose a 5% withholding tax on things like dividends, taxing Canadians of U.S. companies, an increase of 5% per year to up to 20%.
The amendment to that section, currently in front of the Senate, delays taxes until 2027 and places it up to 15%. The Senate has not voted on the bill, although Trump approved it to the National Holiday (U.S. National Holiday).
The U.S. Congress’s Nonpartisan Joint Tax Committee (JCT) study of Section 899, which performs a function similar to the Office of the Canadian Parliament’s Budget Office, predicts that the new tax will initially bring billions of dollars to the U.S. Treasury Department. However, it also predicts that these revenues will start to decline – by 2033 or 2034, which will actually lead to a decline in revenue.
The U.S. Treasury is expected to be rewarded with approximately $116.3 billion in U.S. rewards between 2025 and 2034. The U.S. Treasury company's $12.5 billion rose to $28.7 billion in 2027 in 2027, and the U.S. Treasury increased by $3.8 billion in 2028.
However, analysis predicts that revenue will start to decline. Withdrawal taxes are expected to cost the U.S. Treasury $4.8 billion in revenue by 2033, and by 2034, the U.S. $8.1 billion.
The revised version of Revised Section 899 is expected to bring only $52.2 billion in the United States between 2025 and 2034.
A source familiar with JCT's work said its analysis assumes that the U.S. National products will remain fixed, while foreign laws such as DST will not change. However, it assumes that changes will be made by individuals and companies to avoid withholding taxes.
JCT predicts that a reduced demand for direct investment and portfolio investment by foreign investors will reduce the value of U.S. assets. In turn, a decline in value will lead to tax losses from the U.S. Treasury.
David MacDonald, a senior economist at the Canadian Center for Policy Alternatives, said the JCT analysis is a big assumption–country like Canada won’t fight back against the United States with its own retaliation tax.
He said the ongoing trade war showed Canada's willingness to fight back.
McDonald said that if Canada retaliates, the U.S. is more susceptible to exposure than Canada in terms of taxation, as many U.S. companies operate here.
“Canada makes a lot more profits than Canadian companies in the United States,” McDonald said.
MacDonald agrees with JCT's assessment that withholding tax may prompt U.S. securities investment, predicting that many companies may already be figuring out how to hedge their investments.
He said it was not good for the business and risked destroying the economies of both countries.
“No one wins the trade war, no one wins the tax war,” McDonald said.
