After the federal government repealed a digital services tax that targeted U.S. tech companies, an expert on foreign affairs said it was more important for Canada to secure an economic and security deal for Canadian workers and businesses than to keep the tax in place.
Colin Robertson, a former Canadian diplomat and vice president and fellow at the Canadian Global Affairs Institute, says the move to implement the tax and then rescind it was part of the negotiation process.
“It was a bargaining chip,” Robertson told BNN Bloomberg in a Monday interview. “It was certainly something I thought we would probably give up. Normally, what you do in negotiations is you make your concessions at the end.”
The planned Digital Service Tax Act (DST) by the Mark Carney government would have slapped a three per cent surcharge on digital services revenue a firm generates from Canadian users above $20 million in a calendar year. Payments were to be retroactive to 2022.
The tax would have impacted U.S. technology firms such as Amazon.com, Meta, Alphabet’s Google and Apple. The tax collection slated for Monday will now be halted, according to a statement from Canada’s finance ministry. Finance Minister Francois-Philippe Champagne will bring forward legislation to rescind the DST.
The repeal was made after U.S. President Donald Trump said his government would end all trade talks with Canada until the tax was removed.
“Because we have been in discussions with the U.S. government since Prime Minister Carney visited and met with Mr. Trump last month in the Oval Office, I think they decided, let’s just put this aside,” said Robertson.
“This was one we were probably going to give up anyways. We don’t know, but there are signs we are making some progress. My guess is from the U.S. side, Mr. Trump decided to throw this in, and Canada conceded.”
The statement said Canada’s new government is engaged in complex negotiations on a new economic and security partnership with the United States. Trump said Canada was “copying the European Union, which has done the same thing,” when the feds decided to implement the tax. Currently, about half of European member countries with the Organisation for Economic Co-operation and Development (OECD) have either announced, proposed, or implemented a DST.
“Because the taxes mainly impact U.S. companies and are perceived as discriminatory, the United States responded with retaliatory tariff threats, urging countries to abandon their DSTs.
Robertson acknowledged the repeal will be watched by other countries who have similar legislation in place.
“It would be far better if we could negotiate something in a setting like the OECD or multilaterally, and I think that was the preferred route of the United States,” said Robertson. “Something will happen at some point, but better to do it with other countries, rather than, I think, the way we proceeded.”
Canada rescinding the tax was made “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States,” according to the finance ministry statement.
Further, it says “consistent with this action, Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21.”
Robertson said it is important for Canada to review the United States-Mexico-Canada agreement (USMCA), the free trade agreement that replaced the North American Free Trade Agreement (NAFTA) in 2020.
