The really big sword hanging over Canada’s head right now is in Congress.
Trudeau’s government has a remarkably poor record managing the digital world.
A merica is running out of patience with Canada.
This time, the issue is not the northern neighbor’s refusal to meet defense-spending commitments. Nor is it a revival of the softwood-lumber problem, now entering its fifth decade. This time, it is Canada’s break from the Organization for Economic Co-operation and Development’s (OECD) efforts to determine an international agreement on how to tax global tech giants.
Facing devastating budget deficits, Prime Minister Justin Trudeau’s government gave up on the OECD process that has dragged on for years without resolution. On June 20, Canada’s Parliament enacted a Digital Services Tax (DST) on all domestic and foreign companies’ Canadian income earned from the online marketplace. This includes advertising and social-media services, as well as any revenue derived from user data transactions. The tax applies to domestic companies that earn $20 million CDN in revenue annually and, for foreign companies, 750 million euros in global revenue annually. The tax is retroactive to January 1, 2022, and first payments are due in June 2025, by which time it is expected the government will have put plans in place on how to spend the revenue earned — estimated by Canada’s Parliamentary Budget Office to be more than $7 billion CDN over the next five years.
Nothing to sneeze at, perhaps, but also not a figure likely to make much of a difference to the federal government’s $535 billion CDN annual spending budget. This raises questions: Will this be taken as a poke in the eye by the United States and technology giants? And, if so, is it worth the risk?
Finance Minister Chrystia Freeland has maintained a stiff upper lip, insisting “I am confident that a win-win outcome . . . for Canada and the U.S. is absolutely possible.”
But her optimism lacks company. American and Canadian chambers of commerce denounced the move as “unilateral and discriminatory,” and U.S.-based companies such as Amazon expressed their unease. Similarly, U.S. ambassador to Canada, David Cohen, cleared his diplomatic throat and stated that his country is “assessing, and is open to using, all available tools that could result in meaningful progress toward addressing unilateral, discriminatory” taxes such as the DST.
Google, as it has done in other countries (such as Spain) that have unilaterally imposed equivalents to the DST, announced that it would impose a 2.5 percent DST fee on its Canadian transactions beginning in October. Others are expected to take similar cost recovery actions that include increasing costs for consumers.
But the really big sword hanging over Canada’s head right now is in Congress.
The same day the legislation became law in Canada, House Ways and Means Committee chair Jason Smith (R., Mo.) was unequivocal with his condemnation, stating, “America will not stand by quietly while Canada embraces discriminatory taxes on Americans that undermine the U.S. economy and our historic trade partnership.”
The matter didn’t rest there. Last month, every Republican member of Smith’s committee signed a letter to U.S. Trade representative Katherine Tai, making their view clear, “The time has come to make clear to Canada’s political leadership that the United States is done examining options and will act decisively to protect American workers, small businesses, and innovators.” The letter adds that “a weak response from the Biden Administration will harm American interests, lead to a proliferation of similar measures, and allow Chinese companies to gain a foothold in the markets of our closest trading partners.”
Trudeau’s government has a remarkably poor record managing the digital world. Its Online Streaming Act put all audio and visual internet content under the management of the Canadian Radio-television and Telecommunications Commission (CRTC), which is the official federal body that regulates this area. The CRTC recently imposed a 5 percent fee on all streamers in order to subsidize domestic television and film producers, along with musicians and radio newsrooms. So far, three of the largest music-streaming services have brought court challenges, and there are rumors that some streaming services will abandon the Canadian market entirely.
Canada’s Online News Act anticipated redistributing hundreds of millions of dollars from Meta and Google to news publishers. Instead, Canadian Facebook and Instagram no longer allow news links to be shared on their platforms, and a $100 million CDN fund from Google for distribution to Canadian news organizations only put a dent in the losses that the journalism industry has suffered.”
Based on that track record, it’s highly likely Trudeau’s Canada is, when it comes to its Digital Services Tax, simply tugging on Superman’s cape. And that never ends well.