Episode 239: The Rise and Fall of Canada’s Digital Services Tax

Canada's Digital Services Tax (DST), aimed at taxing big tech companies on certain digital revenues in Canada, was abruptly rescinded only hours before its implementation due to intense pressure from the U.S. administration (under Trump). The DST was a 3% surtax retroactive to 2022, expected to raise $7.2 billion over five years, targeting mainly large multinational tech companies including U.S. giants.

Despite international efforts at the OECD to create a unified approach and a moratorium on DSTs, Canada pushed ahead, citing a grandfather clause. This led to predictable U.S. retaliation threats, including potential tariffs and suspending trade negotiations, which ultimately forced Canada to abandon the DST to resume talks.

This episode highlights how Canada misplayed its hand in digital policy, prioritizing revenue over strategic negotiation, leading to a "digital trade debacle" and signaling a need for the country to reset its tech regulation approach beyond mere taxation.

• Canada's DST targeted large multinationals by taxing 3% of digital service revenues earned in Canada.
• It applied retroactively from 2022 and was expected to bring significant revenue of $7.2 billion over five years.

• OECD's international agreement led to a moratorium on new DSTs, including Canada.
• Canada ignored this moratorium, insisting it should be grandfathered and pushing ahead regardless.