Digital Services Tax: Trump’s Latest Beef With Canada

US President Donald Trump is targeting Canada once more. He declared via Truth Social that he is “ending all trade talks” with Canada effective immediately. The cause of his outburst this time is the Digital Services Tax. The Digital Services Tax was implemented last year, but businesses are anticipated to begin paying the tax starting June 30. And because it will directly affect the major tech firms and large online retail platforms based in the US, President Trump is furious.

The Digital Services Tax mandates that both foreign and domestic large corporations pay a revenue tax on earnings generated from interacting with online users in Canada. It imposes a three percent tax on income generated from certain digital services that depend on interaction, data, and content contributions.

Thus, taxable income might be produced via online marketplace services, online advertising services, social media services, and sales of user information. The Digital Services Tax will be imposed on companies or groups that have global revenues exceeding €750 million and Canadian digital services earnings surpassing CAD 20 million.

Importantly, the tax is effective from January 1, 2022, and businesses will begin remitting the tax on June 30, 2025. The main idea behind the Digital Services Tax is that if large foreign companies generate substantial revenue from Canadian users, Canada ought to tax a share of that revenue.

According to a note from the US Trade Representative last year, Canada is projected to earn approximately $875 million annually from the Digital Services Tax. According to the Canadian Parliamentary Budget Office, the Digital Services Tax will boost federal government revenues by CAD 7.2 billion over five years.

The USTR examined Digital Services Taxes in multiple nations, considering them biased against US companies, prompting plans for retaliatory tariffs, including against Canada. In August 2024, USTR Katherine Tai declared consultations with Canada under the USMCA concerning its Digital Services Tax, claiming breaches of commitments that mandate equal treatment for both US and Canadian companies. Since 2021, the U.S. has raised concerns regarding Canada’s tax policies.

The U.S. Chamber of Commerce described the tax as biased and against global tax standards. In spite of U.S. resistance, Canadian Finance Minister Francois-Philippe Champagne announced the tax’s rollout, pointing to setbacks in international tax efforts, as Canada aims to establish its position during ongoing tensions with the U.S.