Canada cancelled its digital services tax. What was it and why did the U.S. hate it?

National Post

3 days ago

Article content
The Liberals had long maintained Canada would go ahead on its own if the OECD deal fell through. In a 2024 release, the government said while 'Canada's priority and preference has always been a multilateral agreement,' many of Canada's allies have digital services taxes in place.
Article content
'Canada has been at a disadvantage relative to these countries which have continued collecting revenue under their pre-existing digital services taxes,' it said.
Article content
Why do some oppose it?
Article content
Critics of the tax took issue with Canada's refusal to wait for a global deal. They also opposed the retroactive application of the tax, which means companies will have to pay several years' worth of taxes at once.
Article content
U.S. businesses and politicians argued the tax targets U.S. companies. The tax applied to all large tech companies no matter where they were based, but because so many of those companies are American, U.S. firms would have paid the bulk of the money.
Article content
In a letter earlier this month, 21 members of Congress said U.S. companies will pay 90 per cent of the revenue Canada will collect from the tax, and that first payment will cost U.S. companies US$2 billion.
Article content
Article content
That opposition isn't new. The Biden administration also pushed back against the tax, and the stance isn't isolated to Canada, with the U.S. also opposing digital service taxes imposed by other countries.
Article content
Before the tax was rescinded on Sunday, the president of the American Chamber of Commerce in Canada said its 'members have been warning for years that this tax would become a flashpoint in the Canada-U.S. relationship. That moment has arrived.'
Article content
The tax is 'retroactive, one-sided, and deeply damaging to cross-border trade,' Rick Tachuk said in an emailed statement, which encouraged Canada to cancel its tax.
Article content
Michael Geist, Canada research chair in internet and e-commerce law at the University of Ottawa, wrote in a blog post Saturday the current conflict shouldn't come as a surprise.
Article content
'Canada pushed ahead despite efforts at an international agreement on the issue and later dismissed the increasing friction over the issue with the U.S., which has been signalling its opposition to the DST for many years,' he said.
Article content
Geist said once Finance Minister Francois-Philippe Champagne confirmed on June 19 Canada would be going ahead with the tax, the government 'virtually guaranteed the U.S. would respond as it did.'
Article content
Where does Trump come in?
Article content
While opposition to the tax has been brewing south of the border for years, Trump escalated it abruptly Friday afternoon with an online post.
Article content
He wrote he was 'terminating all discussions on trade with Canada' because of the tax and called it a 'direct and blatant attack on our country.' He also complained about Canada's dairy-sector protections that include high tariffs on imports of American milk and cheese.
Article content
Article content
Donald J. Trump Truth Social 06.27.25 01:44 PM EST pic.twitter.com/kqmNyDXwgJ
— Commentary Donald J. Trump Posts From Truth Social (@TrumpDailyPosts) June 27, 2025
Article content
Canada and the U.S. have been in a trade war for months, triggered by Trump's imposition of tariffs. At the G7 summit in Alberta earlier this month, Carney and Trump agreed to work on reaching a deal by mid-July — work that Trump said was halted Friday.
Article content
Friday afternoon, shortly after Trump's post went live, Carney told reporters he hadn't spoken to Trump that day but that 'we'll continue to conduct these complex negotiations in the best interests of Canadians.'
Article content
The decision opened the door for trade talks to restart, and Carney said in a statement, the overall results of those talks were paramount.
Article content
'In our negotiations on a new economic and security relationship between Canada and the United States, Canada's new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,' he said.
Article content
Article content
'Today's announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month's G7 Leaders' Summit in Kananaskis.'
Article content