Digital tax spat

Move over, dairy tariff quotas… there’s a new Canada-U.S. trade disagreement in town. 

What happened: The feds introduced legislation that would introduce the Digital Services Tax (DST), which would levy a 3% tax on tech companies with annual revenues of over ~$1.1 billion and Canadian digital services revenues of $20 million (i.e. Amazon, Google).

  • It’s projected to raise ~$900 million annually, per the 2021 budget. The feds didn’t specify when it might come into effect, but implied they’re aiming for January 1.

Catch-up: This year, OECD nations near-unanimously agreed to wait until 2025 to roll out any new DSTs. Canada was one of just five countries to vote against the motion, directly in defiance of the U.S., which has repeatedly asked Canada to hold their tax-loving horses.  

  • The U.S. is worried DSTs would undermine the OECD’s ambitious set of new global tax rules — a crusade the U.S. has been leading — which have yet to be ratified.

Why it matters: No country wants to be in a dispute with its largest trade partner. Some experts are even worried that this clash could raise tensions ahead of a review of the CUSMA free trade agreement in 2026, to the point where its future might be in jeopardy.—QH