Liberal government enacts controversial digital services tax, raising trade concerns

The federal government has enacted a controversial digital services tax that will bring in billions of dollars while threatening Canada's trading relationships by taxing the revenue international firms earn in Canada.

The Liberal government proposed the tax in its 2019 election platform. It later agreed to delay implementing the measure until the end of 2023 in the hopes it could reach a deal with other OECD countries on how multinational digital companies should be taxed.

Negotiations on an international deal continued to drag on past that date and the federal government issued an order in council on June 28 to enact the digital services tax (DST), which received royal assent June 20.

Deputy Prime Minister and Finance Minister Chrystia Freeland told reporters in Milton, Ont. on Thursday that «Canada's preference is, and has always been, a multilateral solution.»

«Its simply not reasonable, not fair, for Canada to indefinitely put our own measures on hold,» she said. «A number of other countries have a DST in place right now, and they have had a DST in place for a number of years with no retaliation [from the U.S.].»

Freeland said if allies such as the U.K., Spain, Italy and France are able to impose a DST without facing retaliation from the U.S., Canada should be able to as well.

«We have been and continue to work really hard to achieve a multilateral solution,» she said. «I am confident that a win-win outcome … for Canada and the U.S. is absolutely possible.»

Digital firms that have global annual income of at least $1.1 billion will see annual revenues in Canada over $20 million taxed at a rate of three per cent. The first year of the tax includes revenue earned since Jan. 1, 2022.

The Parliamentary Budget Office estimated