Canada enacts digital-services tax amid US reprisal threat

Canadian Prime Minister Justin Trudeau's government has authorized the implementation of a digital-services tax on large foreign technology companies, despite warnings of trade retaliation from the U.S. 

A government notice posted online indicated the tax came into effect as of June 28. It will apply for calendar year 2024, with that first year covering taxable revenues earned since Jan. 1, 2022.

The tax is a 3% levy on the digital services revenue a company makes from Canadian users above C$20 million ($14.7 million) in a calendar year. It would apply only to companies with annual worldwide revenue of more than about C$1.1 billion. 

It will primarily hit major U.S. firms, with Alphabet Inc. and Meta Platforms Inc. among those set to be impacted.

U.S. lawmakers and government officials view the tax as unfair and have threatened to retaliate if Canada moved forward with it. Legislation including the tax passed last month, but the government had not announced when it would come into force, until now.

Finance Minister Chrystia Freeland had said Canada would not enact the tax if a global tax treaty through the Organization for Economic Co-operation and Development is implemented, but so far that treaty has not been ratified by the US.

Paige Taylor White/Bloomberg

Her government has noted that at least seven other countries, including the U.K., France, Italy and Spain, already have similar taxes in place.

"I can't accept Canada permanently or indefinitely being in a worse position from our allies," Freeland told reporters on Thursday.

Canada has been engaged in bilateral conversations with the U.S. and remains confident a "win-win" outcome can be reached, she said, without specifying exactly what such a deal would look like.

The opposition Conservatives and domestic business groups decried the decision. 

The levy "will not only make life more expensive for Canadian families, businesses and workers, but it will significantly harm our relationship with the United States," Robin Guy, vice-president of the Canadian Chamber of Commerce, said in a statement.

"We urge the government to reconsider," the Business Council of Canada said in a separate statement. "As we have warned the government repeatedly, this unilateral move puts our country at risk of retaliatory trade action from the US, our most important trading partner."

Kyle Seeback, the Conservative critic for international trade, accused Trudeau of imposing the tax to pay for "wasteful and inflationary spending." Any retaliation from the U.S. will hurt Canadian businesses and workers, Seeback said in a statement.

Canada's parliamentary budget officer has estimated the tax would raise about C$7.2 billion over five fiscal years.

News of the implementation of the tax was first reported by the Wall Street Journal.