Canada’s digital companies tax a possible Trump goal

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OTTAWA — The Liberal government has spent years touting its efforts to make tech giants pay. Now, those pieces of legislation could be a target of the Trump administration — particularly the digital services tax that requires large tech companies to make a hefty retroactive payment in June.

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The heads of the biggest U.S. tech companies attended Donald Trump‘s inauguration Monday. They included Amazon.com Inc. founder Jeff Bezos, Meta Platforms Inc.’s Mark Zuckerberg, Apple Inc.’s Tim Cook and Alphabet Inc.’s Sundar Pichai, as well as Tesla Inc. CEO and vocal Trump supporter Elon Musk.

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Meredith Lilly, a professor at Carleton University’s Norman Paterson School of International Affairs, noted that Canada is a relatively small market for big U.S. tech companies.

“Nevertheless, they are close with the Trump administration, and so I would anticipate that they have the president’s ear to some extent,” she said. “So I do think that we should expect them to want some kind of action with Canada, in particular on the digital services tax.”

The tax applies to companies that operate online marketplaces, online advertising services and social media platforms, and those that earn revenue from some sales of user data. It imposes a three-per-cent levy on revenue that foreign tech giants generate from Canadian users.

It’s retroactive to 2022 and covers companies such as Amazon, Google, Facebook, Uber Technologies Inc. and Airbnb Inc. Companies are required to file a return by June 30. The Parliamentary Budget Officer has estimated the tax will bring in $7.2 billion over five years.

Under former U.S. president Joe Biden, the United States was already pushing back on the tax. President Donald Trump signed an executive order on his first day back in office pulling the U.S. out of an international effort to establish digital tax rules.

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The executive order directs the U.S. treasury secretary to investigate countries with tax rules that are “extraterritorial or disproportionately affect American companies.”

Lilly said the wording of the executive order suggests the U.S. will go after all countries that have implemented similar taxes, including France and the U.K. She said the most direct way for the United States to raise concerns would be through the Canada-United States-Mexico agreement.

Lilly noted the executive order directs the treasury secretary to report to the president within 60 days, which would be in mid-March.

“I would expect any time thereafter for discussions with any country that has a digital services tax in place to accelerate quickly,” she said.

University of Ottawa law professor Michael Geist, who specializes in e-commerce, has said the executive order makes the Canadian digital services tax “an obvious target.”

He said in an online post Tuesday that “given the efforts of the major tech companies to curry favour with the new U.S. administration, expect the elimination of the tax to emerge as a key U.S. demand.”

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The digital services tax may not be the only piece of Canadian online regulation in the crosshairs.

“I do think that the Online Streaming Act will come to their attention, in part because (there are) very influential tech firms now closely linked to the president, and none of them like Canada’s Online Streaming Act,” Lilly said.

The bill updated broadcasting laws to capture online platforms. In recent days, groups representing U.S. businesses and big tech companies warned the CRTC its efforts to implement that legislation — particularly the requirement that big foreign streaming companies contribute money toward the creation of Canadian content — could worsen the trade conflict with the United States.

“Now is not the time for Canada to invite retaliation on trade issues from the incoming administration,” the U.S. Chamber of Commerce told the broadcast regulator in a document filed as part of a CRTC proceeding on a new definition of Canadian content.

The Motion Picture Association — Canada, which represents such big streaming companies as Netflix Inc., Disney Inc. and Amazon, also recently launched an ad campaign against the CRTC’s efforts, warning about a “new tax that could drive prices up.”

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Lilly said the U.S. could tackle that issue as part of the CUSMA review.

Geist said another target could be Canada’s Online News Act, which compels tech companies to enter into agreements with news publishers. Google, which is so far the only company to be captured under the legislation, has paid out $100 million to a journalism organization designed to disperse the funds.

Geist, who has been a critic of all three bills, said in an email that the U.S. could include them all in the overall demands it makes related to Trump’s threat to impose 25 per cent tariffs on Canada, “in the hope of getting some concessions from the Canadian government.”

It could also use “the dispute resolution under CUSMA and the executive order … to raise concerns and encourage Canada to delay or drop” the digital services tax. He said the U.S. could also use the reopening of the CUSMA negotiations to put the online streaming and news bills “on the table.”

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