Technology giants like Amazon and Google will not have to pay nearly $ 2 billion as expected on Monday, since Canada decided to cancel its controversial tax on digital services on Sunday, only one day before the first payment.
The announcement of the Minister of Finance, François-Philippe Champagne, occurred late Sunday evening, following a telephone call between Prime Minister Mark Carney and US President Donald Trump.
This call ended a wave of discussions between the two countries since Mr. Trump suddenly announced on Friday afternoon that it ended all trade negotiations with Canada and threatened to impose new customs duties.
But this dispute has been developing for years.
Here is an overview of the nature of this tax and the reasons why Mr. Trump has taken such a radical measure to try to delete it.
-What is digital services tax?
The tax was announced in 2020, but the law to implement it was only adopted last year. Although in force for a year, the first payment, retroactive to 2022, was to be carried out on June 30.
The government wanted to remedy that Canada considered a tax escape: large technological companies exercising their digital activities in Canada garner profits thanks to Canadian users and their data, without paying tax on these profits in Canada.
The tax was to apply to companies that operate online market places, online advertising services and social media platforms, as well as those that draw income from certain user data sales.
Companies like Amazon, Google, Meta, Uber and Airbnb would pay a 3 % tax on income from Canadian users.
The tax would only apply to large companies, those whose annual world turnover is more than 750 million euros and whose turnover of Canadian digital services is more than $ 20 million per year. The budget parliamentary director had estimated that this tax would earn $ 7.2 billion over five years.
As the first payment was retroactive over three years, it was expected that companies, collectively, be liable for an initial payment of around 2 billion US.
-Why did Canada impose it?
Work had been underway for years in the Organization for Economic Cooperation and Development (OECD) to set up a multilateral tax approach intended to replace the taxes on the digital services imposed by the different countries.
But due to the impasse of this work, Canada has decided to establish its own tax. Other countries, including France and the United Kingdom, also have digital taxes.
Liberals have long promised that Canada would act alone if the OECD agreement failed. In a 2024 statement, the government said that “Canada’s priority and preference have always been a multilateral agreement”, many allies from Canada have implemented digital services.
“Canada is disadvantaged compared to these countries which have continued to receive revenue for their taxes on pre-existing digital services,” he said.
-Why do some oppose it?
Tax detractors criticized Canada’s refusal to wait for a global agreement. They also opposed the retroactive application of the tax, which means that companies will have to pay the equivalent of several years of taxes at the same time.
American companies and politicians argued that the tax was aimed at American companies. This tax applied to all large technological companies, regardless of their location. However, as many of these companies are American, they are the ones who have paid most of the sum.
In a letter published earlier this month, 21 Congress members said that US companies would pay 90 % of the revenues that Canada will collect thanks to this tax, and that this first payment would cost them 2 billion US.
This opposition is not new. The Biden administration has also opposed this tax, and this position is not specific to Canada. The United States is also opposed to digital services taxed by other countries.
Before the tax repeal on Sunday, the president of the US Chamber of Commerce in Canada said that its members “have noticed for years that this tax would become a point of friction in Canadian-American relations. This moment has happened ”. This tax is “retroactive, unilateral and deeply detrimental to cross -border trade”, argued Rick Tachuk in a statement sent by email, encouraging Canada to cancel it.
Michael Geist, holder of the Canada Research Chair in Internet and Electronic Trade Law at the University of Ottawa, wrote in a blog post on Saturday that the current conflict should not surprise.
“Canada has persisted despite the efforts made to achieve an international agreement on the issue and then minimized growing friction with the United States, which has been demonstrating their opposition to (tax) for many years,” he said.
Geist said that after the Minister of Finance, François-Philippe Champagne, confirmed, on June 19, that Canada was going ahead with the tax, the government “practically guaranteed that the United States would react as they did”.
– What is the role of Trump?
While the opposition to the tax has been rumbling south of the border for years, President Trump suddenly amplified it on Friday afternoon with an online publication.
He wrote that he put an end to all trade discussions with Canada because of the tax, calling it “direct and obvious attack against our country”. He also complained about the protections of the Canadian dairy sector, including high customs duties on imports of American milk and cheese.
Canada and the United States have been engaged in a trade war for months, triggered by the taxation of customs duties by the Trump administration. At the G7 summit in Alberta earlier this month, MM. Carney and Trump agreed to work at the conclusion of an agreement by mid-July-work which, according to Mr. Trump, was interrupted on Friday.
Friday afternoon, shortly after the publication of Mr. Trump’s message, Prime Minister Carney told journalists that he had not spoken to him that day, but that “we will continue to carry out these complex negotiations in the best interests of Canadians”.
-What happened on Sunday?
A wave of activity followed the message of the American president on Friday, culminating Sunday evening with the call between MM. Trump and Carney.
This decision paved the way for the resumption of commercial negotiations, and Mr. Carney said in a statement that the overall results of these discussions were essential.
“When the new Government of Canada participates in negotiations on a new economic and security partnership between Canada and the United States, it is always guided by the general rebate of any agreement for workers and businesses in Canada,” said Carney.
“Today’s announcement will help resume negotiations to comply with the period of July 21, 2025 agreed earlier this month at the G7 leaders’ summit in Kananaskis.”
