Canadian Chamber of Commerce says Trump’s revenge tax would hit investors hard even with proposed changes

The U.S. Senate’s proposed revisions to President Donald Trump’s tax hikes on foreign investors won’t change the outcome for Canadian companies or investors holding U.S. securities, the Canadian Chamber of Commerce says.

Mr. Trump’s “One Big Beautiful Bill” targets what the U.S calls “discriminatory or unfair taxes” in foreign countries, including Canada’s digital services tax (DST), which was introduced in 2024.

Last month, the U.S. House of Representatives narrowly passed the legislation, including Section 899, which would increase tax rates for Canadian companies and could cost investors who own U.S. securities billions in additional taxes. Section 899 has been informally called the revenge tax.

On Monday, the Senate proposed a revision to Section 899 to push the implementation date back a year to 2027 from 2026, and to hike taxes by 5 percentage points a year to a maximum 15-percentage-point increase.

The House version of the bill proposed increasing tax levels by 5 percentage points a year to a maximum of 20 percentage points.

“No matter how you slice it, both versions of section 899 could result in Canadians’ retirement savings being withheld to pay U.S. taxes − as retaliation for Canada’s digital services tax, the [undertaxed profits rule] or global minimum tax,” said David Pierce, vice-president of government relations at the Canadian Chamber of Commerce.

“We urge the [Canadian] government to press pause on the digital services tax and focus on securing a fair deal at the negotiating table this summer.”

On Thursday, Finance Minister François-Philippe Champagne told reporters that Canada would be going ahead with the DST.

Opinion: How Canada’s digital services tax is hurting small businesses

Canada passed the DST retroactively to 2022 after the Liberal government said it could no longer wait for a multilateral agreement to emerge from the Organization for Economic Co-operation and Development for taxing global tech giants, most of which are based in the U.S.

With the June 30 deadline looming for filing the first DST return for the period from 2022 to 2024, Mr. Pierce says time is running out and the “government should use the options it has within its control.”

“If any government told taxpayers they might impose a tax, waited years, and then suddenly collected it retroactively, there would be public outcry,” Mr. Pierce told The Globe and Mail in an e-mail.

“That’s the situation we’re creating – and it risks giving the U.S. administration even more ammunition to claim unfair treatment. If we don’t de-escalate now, which Canadian sector will be in their crosshairs next?”

The U.S Senate’s revised bill still needs to be reviewed by the House of Representatives before it can be sent to Mr. Trump for approval. The White House expects the President to sign the final bill by July 4.

In the meantime, some Canadian wealth managers have been quick to scenario-test their investment portfolios with U.S exposure, while others have taken a more wait-and-see approach to see what the final bill will include.

Britta McKenna, a cross-border trust and estate lawyer with HodgsonRuss LLP, based in Buffalo, told a group of tax experts in Toronto this week that the most significant take-away with the Senate’s proposed revisions is that Section 899 was not dropped altogether.

“So this seems to perhaps not be a super-controversial item and if we get to final legislation, this may indicate that it is more likely than not that 899 will remain,” Ms. McKenna said.

The best Canada can hope for is a delay in implementation, or changes prior to final approval, she added.

Also this week, former Bank of Canada governor Stephen Poloz said it appeared as if the U.S administration did not consider what the “unintended consequences” of Section 899 would be when the bill was first proposed.

As when the President announced punishing reciprocal tariffs on “Liberation Day,” only to announce a 90-day pause days later after markets reacted negatively, “this, too, has the potential to be a disaster,” said Mr. Poloz during a public event in Toronto. He said he hoped the U.S. would ultimately not proceed with the legislation. “This is a really bad piece of work, that’s for sure.”

Last week, six Canadian business associations sent a letter to Prime Minister Mark Carney, urging him to pause the implementation of “discriminatory” taxes. Another group of investment industry associations – including the Securities and Investment Management Association (SIMA) – also sent a letter, according to several sources familiar with the matter. The Globe is not identifying the sources because they are not authorized to speak on the matter.

SIMA declined to comment on the letter but said it has formed a subgroup to “assess the potential impact on Canadians, including how different types of income and accounts may be affected.”

“We understand that the government is aware of the issue, and we are now reviewing the Senate’s draft version of the bill,” said Josée Baillargeon, director of taxation policy at SIMA, in an e-mail.

Last month, SIMA estimated that the House version of the bill could cost investors who own U.S. securities up to $81-billion in additional taxes over seven years.

The CEOs of Canada’s three largest pension funds have also all warned about the potentially damaging effect of Section 899 over the past week, saying the proposal is pushing them to reconsider whether to make new investments in the United States.

The Canada Pension Plan Investment Board, which oversees $714-billion of assets, is factoring potential tax increases into its assessments of new U.S. investments even before the legislation passes, CEO John Graham said Tuesday in an interview.

“Already, we have to price it in,” he said, because the CPPIB makes long-term investments and can’t predict how the tax proposals will play out.

“If your cost of capital becomes uncompetitive, you’ll move to another jurisdiction,” he said.

Deborah Orida, the CEO of the Public Sector Pension Investment Board, said in an interview last week that the biggest decision facing the $300-billion pension-fund manager would be “how much we want to incorporate it in into our underwriting for future investments.”

On June 11, Charles Emond, CEO of Caisse de dépôt et placement du Québec, told a business audience in Montreal that the tax proposal is “dangerous” because it would weaken investors’ confidence in the U.S, even as it brought in revenue for the government in the short term.