Trump’s ‘revenge tax’ on other countries could hit U.S.

President Donald Trump’s administration is proposing a controversial tax that could have far-reaching implications for Canadians, Canadian businesses, and the U.S. government itself. The tax, known as the “revenge tax” under Section 899 of Trump’s One Big Beautiful Bill Act, aims to impose a new withholding tax on investment income paid out by American companies to investors living in countries that the U.S. deems to have unfair or discriminatory taxes.

One of the taxes that the U.S. considers discriminatory is Canada’s digital services tax, which targets tech giants like Amazon, Google, Meta, Uber, and Airbnb. This has raised concerns among top Canadian officials, as well as Canadian investors, companies, investment advisors, and tax lawyers.

Finance Minister François-Philippe Champagne has affirmed his support for the digital services tax, despite the potential impact of the revenge tax. Two versions of Section 899 are currently being considered by Congress, both of which could result in a new withholding tax for Canadians and Canadian companies.

The House of Representatives’ version of the tax would impose a five percent withholding tax on dividends paid to Canadians from U.S. companies, increasing by five percent each year up to a maximum of 20 percent. On the other hand, the Senate’s amended version would delay the tax until 2027 and cap it at 15 percent.

A study by the U.S. Congress’s Joint Committee on Taxation (JCT) predicts that while the revenge tax may initially generate billions for the U.S. Treasury, revenues are expected to decline over time. By 2033 or 2034, the tax could actually lead to a drop in revenue for the government.

David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, warns that a trade war or a tax war benefits no one. He highlights the potential consequences of the revenge tax, including an exodus of investment in U.S. securities and the negative impact on both countries’ economies. Macdonald emphasizes the need for countries to avoid retaliatory measures and work towards mutually beneficial solutions.

In conclusion, the proposed revenge tax could have significant repercussions for Canadians, Canadian businesses, and the U.S. government. It is crucial for all parties involved to navigate this issue carefully to avoid further escalation and economic harm.