What is Canada’s digital services tax — and why does Trump dislike it so much?

The ongoing trade dispute between Canada and the United States has recently escalated due to the implementation of Canada’s digital services tax. This new levy, set to take effect on Monday, is expected to impact major American tech giants such as Amazon, Apple, Google, and Meta, who will be taxed three percent on their revenue from Canadian users and customers.

International trade lawyer William Pellerin expressed his surprise that it took the U.S. administration this long to raise concerns about the tax. He noted that the U.S. has been critical of the tax since its inception, as it primarily targets American companies. The U.S. argues that the tax discriminates against American firms and could cost them up to $1 billion annually.

The digital services tax has been in the works for years, with Canada aiming to modernize its tax code and capture revenues earned by foreign companies in the country. The tax is expected to generate over $7 billion in revenue over five years, providing a significant financial benefit to the Canadian government.

Despite calls from business groups and lawmakers to delay or eliminate the tax, Finance Minister François-Philippe Champagne emphasized that Canada would proceed as planned. This decision has further strained relations between the two countries, with President Donald Trump announcing the termination of trade discussions with Canada in response to the tax.

While the Biden administration had previously sought dispute settlement consultations under the Canada-United States-Mexico-Agreement (CUSMA), no further action was taken. However, this option remains available, providing a potential alternative to the current standoff between the two nations.

Several other countries, including France, Italy, Spain, and the United Kingdom, have implemented similar digital services taxes in recent years. These taxes aim to ensure that tech giants contribute their fair share to the countries in which they operate.

As the deadline for the implementation of Canada’s digital services tax approaches, the future of trade relations between Canada and the United States remains uncertain. The decision to move forward with the tax has sparked controversy and raised concerns about the potential for a full-blown trade war between the two neighboring nations.