Canada's new digital tax plan ruffles U.S. feathers, could cost companies like Apple billions

Canada is working on a new tax called the Digital Services tax, and it could cost Apple and other tech giants billions. The US is now arguing this tax is discriminating against American tech companies and is pushing for a delay in its enforcement.

Canada's legislation was first proposed in 2021 as an interim measure, following a statement from the G20 (an intergovernmental forum comprised of 19 sovereign countries including the EU and the African Union). The G20 countries are working towards creating a tax (that all countries agree on) on profits made by global tech companies through services.

Canada and other countries want to impose taxes on profits made from online marketplace services. This includes advertising services, social media services, and revenue made from selling user data. A tech company would have to have made $750 million or more in revenue (of which at least $20 million comes from Canadian users) to qualify under that Canadian law.

The US objects to that digital service tax (DST) from the Canadian government. It claims it is discriminatory against US-based companies. Well, nearly all big tech players, including Apple, Microsoft, Google, Amazon, and Meta are all based in the U.S.

It seems that if passed, such an interim text may reportedly violate the rules of the North American Free Trade Agreement. US Trade Representative Katherine Tai needs to reach an agreement to resolve US concerns about the Canadian tax within 75 days of consultations.

The dispute may lead to retaliatory US tariffs on imports from Canada if an agreement isn't reached. The US has prepared tariffs on seven other countries that have passed DST legislation (Austria, Britain, France, India, Italy, Spain, and Turkey), but those are currently suspended pending the outcome of negotiations.

If passed, Canada's DST legislation could take effect later this year, and amounts owed by tech companies would be backdated to January 1, 2022.

In my opinion, Canada's Digital Services tax is a bold move to hold tech giants accountable, but it risks fueling tensions with the U.S. I think Canada should work to avoid unnecessary conflict that could harm both economies. But of course, such things are hard to regulate, so that's why negotiations would last for a long time before an agreement that suits both parties is found.