A lot doesn’t sit right about the Carney government’s capitulation to U.S. president Trump on the stillborn Digital Services Tax (DST), which would have taxed the largely untaxed revenues of tech companies like Google and Meta that operate in the Canadian market. To state the obvious, it looks like the government’s abandonment of the tax, which was supposed to come into effect on Monday, June 30, is the opposite of “elbows up” politics.
We just threw $7 billion onto Trump’s poker table—the expected five-year haul from the DST —simply to keep playing a rigged game with no clear end. What was gained here?
Like so much with respect to these “complicated” trade, security and defence talks with the Americans, we know only what the government chooses to tell us, which is usually nothing or else an obvious rationalization. In this case, they say that Canada always preferred a multilateral tax agreement.
The multilateral option—a two-pillar global tax effort developed by the OECD—was already on death’s bed when Trump took office in January. The MAGA president merely pulled the plug by withdrawing the U.S. from those talks and issuing a February 21 ultimatum to any country looking to go it alone.
The power and wealth of America’s digital giants is virtually unchecked anywhere in the world. U.S. companies dominate the social media, search and online marketplace spheres. Trump acknowledged their importance to the White House when he gave a handful of tech CEOs prime spots at his inauguration in January.
The money these companies earn from online ad revenues—and by selling our personal data (including our search habits)—is virtually untaxed. This is because, like many multinational companies, Google, Meta, Amazon, Airbnb and other online platforms can register their global profits in low-tax jurisdictions.
Tax dodging depletes governments the world over of nearly half a trillion U.S. dollars per year—money that could be spent improving public services and encouraging the development of local competition to the U.S. tech giants. This blatant theft affects lower income countries the worst. They are also the countries most vulnerable to bullying by the U.S. government on behalf of Silicon Valley CEOs.
The Canadian DST, like the probably defunct OECD “pillar one” tax plan, attempted to correct this, at least in the Canadian context, by giving the federal government the power to tax the currently untaxed portion of revenues these firms make from Canadian transactions, such as ad buys on Google or transaction fees on Airbnb.
While U.S. officials in the Democratic and Republican parties accuse the DST of discriminating against U.S. firms—“to stifle American innovation,” according to Commerce Secretary Lutnick today—the tax would have applied to firms of any nationality, and only on revenues above $20 million.
Regular Canadians would have been unaffected, as the tax applies mainly to business-to-business transactions with no relationship to jobs or consumer prices.
Trade watchers have always suspected Canada was holding on to the DST mainly for negotiating purposes. It was something generally positive for Canada that could nonetheless plausibly be negotiated away for some meaningful purpose, perhaps in the planned six-year review of the Canada-U.S.-Mexico Agreement (CUSMA) that replaced NAFTA under the first Trump presidency. Prime Minister Carney admitted this was the plan in a press scrum today (June 30).
The Canadian government, in playing that card early, has depleted Canada’s digital sovereignty and federal revenues, for no apparent reason other than to keep Trump sweet. In doing so, we will undermine efforts in Europe and elsewhere to develop national digital services taxes in the absence of a viable international alternative.
Worse than that, the Canadian government has legitimated Trump’s pointless and highly destructive trade warfare at a possible turning point.
The European Union is finally preparing retaliatory countermeasures in advance of a July 9 deadline for Trump’s “reciprocal” tariffs. Meanwhile, a federal appeals court is deliberating on whether Trump had the constitutional authority to base tariffs on the untested International Economic Emergency Economic Powers Act (IEEPA).
Canada, meanwhile, is moving forward with border security legislation that will criminalize refugee claimants and give Canadian security officials tools to further cooperate with Trump’s racist deportation plans. The Prime Minister has proposed Canada could pitch in tens of billions to the unworkable “Golden Dome” missile defence scheme.
It’s hard to imagine an outcome in the secret Carney-Trump negotiations that would justify this level of back-tracking from a government that promised Canadians “elbows up” diplomacy and a new relationship with the imperial heartland.
