Faced With Impending Trade War With the United States, Canada Backs Off Digital Services Tax Timeline

The deadline for the impending disaster of the Digital Services Tax appears to have been extended as January 1st deadline is removed.

Canada’s Digital Services Tax was set to being on January 1st. This unilateral move on Canada’s part would not only slap an additional $7.2 billion in taxes on seemingly exclusively foreign businesses over the course of 5 years, but also be retroactive to 2022. The targeted platforms were largely American owned, so for reasons that should be blatantly obvious, the American’s have a problem with this. After all, there’s this tiny little thing called “international trade” that might have something to say about all of this – especially in the context of various trade agreements and obligations signed by Canada.

For the American’s part, the US government has repeatedly warned Canada that if they act unilaterally like this, the United States government would slap trade tariffs in response, matching whatever it is that Canada slaps on their businesses with this new tax.

In a lot of these technology issues, the Canadian government has a long history of looking at their own people and Canadian small businesses and shrugging at the idea that they could become collateral damage. It’s largely met with either “oh well, too bad for you” or accusing them of being misinformed. Digital first creators who found their careers flashing before their eyes were met with accusations of their content being “not art” or accusations that they are either “unprofessional” or just “shills” for “Big Tech”. That was in the debates of the Online Streaming Act. Likewise, independent journalists were also accused of being “shills” for “Big Tech” or being “not news“. So, throwing Canadian’s under the bus and letting them be collateral damage was just nothing to be concerned about for the government because, as far as they are concerned, it’s not their lobbyist pals being affected, so who cares?

It’s likely that some in the business community saw these trends and realized that they might be the next round of collateral damage in the Canadian governments terrible technology agenda. So, understandably, a number of those members tried their hand at getting through the governments thick skulls about the situation they were about to be put in. Earlier this month, they went running to the government, getting down on their knees and begging the government to not go through with this Digital Services Tax. A major problem for these businesses is is that there is no telling if they are going to be the governments latest victims. There’s no indication over which sector the American’s were going to go after as part of their retaliation, but they do know that retaliation is coming.

Apparently, Canadian businesses might have been able to do what real journalists and Canadian creators could not: get the government to back off – even in the slightest – of their destructive behaviour. University Law Professor, Michael Geist, has noticed that the language about the Digital Services Tax being implemented on January 1st is now gone:

Earlier this month, Freeland said she was “cautiously optimistic” that an understanding could be reached with the U.S., but appears that the optimism came from a decision to simply remove the January 1, 2024 start date, replaced with the following in the FES:

in order to protect Canada’s national economic interest, the government intends to move ahead with its longstanding plan for legislation to enact a Digital Services Tax in Canada and ensure that businesses pay their fair share of taxes and that Canada is not at a disadvantage relative to other countries. Forthcoming legislation would allow the government to determine the entry-into-force date of the new Digital Services Tax, as Canada continues conversations with its international partners.

While the government plans to move ahead with legislation to facilitate a digital services tax, the “entry-into-force” date has been removed and left for a later decision. This buys time for a potential international agreement on implementing a global approach to the issue and should relieve some of the external pressure.

As I’ve previously written, a digital services tax is preferable to the cross-industry subsidy model found in Bills C-11 and C-18. However, moving ahead now would have created significant risks, including the prospect of billions in retaliatory tariffs. Led by Bill C-18 and the digital services tax, the government talked tough for months about regulating big tech. But with the FES providing a massive bailout to compensate for the harm caused by the Online News Act and the decision to hold off on implementing the DST, it would appear that the tough talk has been replaced by much-needed realism on what amounted to deeply flawed policies and a weak political hand.

Now, to be fair, Canada is far from being out of the woods in all of this. Online content creators still face the end of their careers in about 2 years time (or maybe longer, depending on if litigation happens). Innovative online news organizations are still facing what they themselves called an “existential event” that could easily happen next month (and could still theoretically end my writing career in the process). What’s more, this adjustment could only be a temporary delay and it could simply mean that it happens later this month.

The headline here is that there is finally a sign that the Canadian government has shown a hint that they may have listened to Canadians on these issues for once. That is the bar we are currently working with. You could easily trip over a bar that low, but that is the bar we are currently working with in terms of looking for a positive sign in these debates. Also, for what it’s worth, it’s a good thing that someone, somewhere, out there, finally managed to get through to this completely irrational government. So, it is a positive development that someone finally managed to do it. We still have a long way to go before we start approaching anything even loosely resembling sanity, but hey, a positive development is a positive development.

Drew Wilson on Twitter: @icecube85 and Facebook.