Canada 'naive' over how U.S. would react to digital services tax, observers say

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OTTAWA — The Canadian government was naive about how the United States would react to its contentious digital services tax, says an expert.

UOttawa e-commerce law professor Michael Geist told the Toronto Sun the Liberal government went against sound advice and concerns being brought up about the digital services tas (DST) — a trend the Justin Trudeau Liberals followed religiously during previous — and sometimes disastrous — attempts to control how Canadians access the Internet.

“For the past few years, the Canadian government has been naive, at best, when it’s come to this issue, and I think has been typical with a number of digital policy issues,” he said.

“They’ve oftentimes ignored warning signs and concerns that have been raised about real risks with certain policies and forged ahead— almost inviting critics or their opponents to call their bluff.”

After years of zealously defending the contentious tax, which would require tech giants to pay a tax on revenues generated from Canadian consumers, the Mark Carney Liberals did an embarrassing about-face on the policy late Sunday night — announcing the Trudeau-era legislation would be repealed.

U.S. President Donald Trump walked away from trade talks last week over the DST, describing it as “egregious” and a “direct and blatant attack” on the U.S.

Finance Minister Francois-Philippe Champagne’s decision to yank the bill came after a weekend of cryptic and unhelpful comments from the PMO, claiming Canada would “engage in these complex negotiations with the United States,” despite the fact the negotiations had been put on hold.

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Geist said that while he knew the government would eventually capitulate, he said he the announcement’s timing threw him for a loop.

“I was pretty surprised, I’ll admit,” he said.

“On the one hand, I’m not at all surprised the government ultimately backed down on the DST — that, to me, felt inevitable — but to do so late on a Sunday night, I admit, I did a couple of double-checks to make sure this really was the Twitter feed of the finance minister.”

The tax, enacted a year ago via an order-in-council, was part of the Trudeau Liberal’s election platform since at least 2019.

The law required non-Canadian digital services with annual incomes over $1.1 billion to pay a 3% levy on all revenues from Canadian users exceeding $20 million.

Monday was supposed to be the first due date for companies to pay up — a retroactive payment for revenues collected since 2022, potentially representing a $2-billion boost for government coffers.

Canada’s insistence on a digital services tax, Geist said, wasn’t based on levelling the playing field for Canadian tech companies.

“I don’t think it’s anything more than there’s a lot of money at stake,” he said.

“In many ways it is far larger than some of the other policy-focused attempts to extract money from tech companies, whether that was on streaming, on news —we’re talking about hundreds of millions, potentially, rather than billions.”

Past attempts by the previous Liberal government to regulate the internet, the Online News Act for example, resulted in Canadians no longer able to post or access news stories on Meta platforms like Facebook and Instagram.

“It was a lot of money, and in this case, it was a lot of money going to general revenues,” Geist said.

“As they tried to balance the books, or at least try to find a way to pay for various programs, the prospect of this revenue was very attractive.”

bpassifiume@postmedia.com
X: @bryanpassifiume

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