Canada's new tax bill could cost US tech firms a fortune

The Digital Services Tax (DST), a new tax bill proposed by the Canadian Liberal government in 2021 and enacted on June 20, 2024, has significant implications for U.S. tech firms operating in Canada. The bill, introduced as an interim measure with support from G20 countries, could potentially cost these firms billions of dollars in new taxes, prompting the U.S. government to intervene and advocate for a delay.

According to the Canadian government announcement, the Digital Services Tax will apply a 3% tax on revenue earned from online marketplaces, online advertising services, social media, and user data. Companies covered by this law must earn a minimum annual global revenue of €750 million, and at least CA$20 million of their revenue must come from Canadian users.

The DST applies to revenues earned as of January 1, 2022. Moreover, eligible companies should start paying the new tax on June 30, 2025. Some of the biggest U.S. tech firms, including Apple, Google, Microsoft, Amazon, and Meta, are now covered by the Digital Services Tax in Canada.

Meanwhile, the U.S. government believes the new tax bill violates trade agreements like the North American Free Trade Agreement (NAFTA) and the United States-Mexico-Canada Agreement (USMCA) and might discriminate against U.S. companies.

United States Trade Representative Katherine Tai has made the U.S. government's position on the Digital Services Tax clear, stating:

"The United States opposes unilateral digital service taxes that discriminate against U.S. companies. USTR is taking action today to address Canada's discriminatory policies. As we pursue these consultations, we will continue to support the Department of the Treasury in the OECD/G20 global tax negotiations to bring a comprehensive solution to the challenge of DSTs."

The U.S. Trade Representative is currently in urgent discussions with the Government of Canada to resolve the issue within a strict 75-day timeline. If these efforts prove unsuccessful, the U.S. will request a dispute settlement panel under the USMCA to address the problem.

The U.S. government has also initiated some countermeasures, such as imposing tariffs on countries that have passed similar legislation.