OTTAWA — Canada’s digital services tax and new online streaming regulations are under scrutiny as trade tensions with the United States appear to be on the rise. The Liberal government has been focused on ensuring large tech companies pay their fair share, but this could soon draw the ire of the incoming Trump administration.
The digital services tax, slated to take effect this June, imposes a three-percent levy on revenue earned by foreign tech giants from Canadian users. It has stirred discontent among major U.S. companies, including Amazon and Google, who find themselves facing hefty retroactive payments from the tax which is expected to generate about $7.2 billion over five years.
According to Meredith Lilly, a professor at Carleton University’s Norman Paterson School of International Affairs, the U.S. tech sector is closely aligned with the Trump administration. “They are close with the Trump administration, and so I would anticipate they have the president’s ear to some extent,” Lilly said, hinting at possible retaliations on the digital services tax.
Past U.S. legislative efforts under former President Joe Biden already aimed to push back against similar initiatives globally. The new executive order signed by Trump directs U.S. treasury officials to investigate countries with blanket tax rules seen as disproportionately burdensome to American firms. Lilly noted, “I would expect discussions with any country with such tax rules to accelerate quickly,” positioning Canada right at the heart of this scrutiny.
The potential trade conflict is not limited to taxation; the Online Streaming Act might also come under fire. This legislation mandates foreign streaming companies to invest partially in Canadian content, leading to pushback from U.S. businesses who claim these regulations could deter investment and harm the Canadian creative sector. Groups such as the U.S. Chamber of Commerce have warned Canadian regulators to tread carefully.
The stakes are high. The Motion Picture Association—Canada, which includes giants like Netflix and Disney, has also launched campaigns against Canadian regulations, threatening backlash if new rules are passed. Lilly points out the strength of foreign tech firms’ influence combined with their ties to U.S. political figures will only make things more difficult for Canadian regulators.
“Now is not the time for Canada to invite retaliation from the incoming administration,” cautioned the U.S. Chamber of Commerce, as they seek clarity on Canadian content regulations and their implementation.
Law professor Michael Geist from the University of Ottawa characterized the executive order as targeting various Canadian regulations, including the Online News Act, which compels tech firms to partner with news outlets. Geist noted, “given the efforts of the major tech companies to curry favor with the new U.S. administration,” the removal of the digital services tax could emerge as one of their key demands.
There are fears the U.S. might use Canada’s new streaming law as leverage during the CUSMA treaty negotiations, with threats of tariffs looming over any perceived retaliation. By opening discussions around trade agreements, the U.S. could leverage these Canadian regulatory changes to extract concessions before any tax strategies are implemented.
While some argue these regulatory measures are necessary for the sustainability of Canadian culture and media, the pressures from U.S. tech firms intertwined with extensive lobbying can blur the lines between necessary policy and economic rivalry.
“Expect the elimination of the tax to emerge as a key U.S. demand,” said Geist, echoing concerns over broader legislation addressing online content. The conversation spirals around significant topics as trade relationships teeter on the brink of more deep-seated tensions.
The challenge remains for Canada: how to maintain its regulatory frameworks to support local interests without sparking extensive retribution from American counterparts. With the Trump administration poised to shake up regulatory frameworks, Canada may need to rethink how it balances its policies with international relations.
This tumultuous dynamic could affect the tech sector, cultural output, and international alliances significantly, setting the stage for difficult negotiations. Observers are now watching closely to see how these new policies on both sides may play out over the coming months.