Canada is working on a new tax called the Digital Services Tax that could cost Apple and other tech giants billions. The US now argues that this tax discriminates against American technology companies and is pushing for a delay in its implementation.
Canada's legislation was first proposed in 2021 as an interim measure, following a statement by the G20 (an intergovernmental forum of 19 sovereign countries, including the EU and the African Union). G20 countries are working to introduce a tax (accepted by all countries) on the profits made by global technology companies through services.
Canada and other countries want to impose taxes on profits from online marketplaces, including advertising services, social media services and revenue from the sale of user data. A technology company would have to generate revenue of $750 million or more (of which at least $20 million comes from Canadian users) to fall under this Canadian law.
The United States is opposing the Canadian government's digital services tax (DST), claiming it discriminates against U.S. companies. Well, almost all major technology companies, including Apple, Microsoft, Google, Amazon, and Meta, are based in the United States.
It appears that such a preliminary text, if adopted, could reportedly violate the rules of the North American Free Trade Agreement. US Trade Representative Katherine Tai must reach an agreement within 75 days of consultations to address US concerns about the Canadian tax.
The dispute could lead to retaliatory tariffs by the US on imports from Canada if no agreement is reached. The US has prepared tariffs on seven other countries that have already passed DST laws (Austria, the UK, France, India, Italy, Spain and Turkey), but these are currently on hold pending the outcome of the negotiations.
If passed, Canada's DST legislation could come into force later this year, making amounts owed by technology companies retroactive to January 1, 2022.
In my opinion, Canada's digital tax is a bold step to hold the tech giants accountable, but it risks increasing tensions with the US. I think Canada should work to avoid unnecessary conflicts that could harm both economies. But of course, such things are difficult to settle, so negotiations would take a long time to find an agreement that suits both sides.