The recent cancellation of Canada's digital services tax has drawn criticism from experts who argue that it highlights a miscalculation in the government's negotiation strategy with the United States. According to Michael Geist, a law professor and Canada Research Chair in Internet and E-Commerce Law at the University of Ottawa, the decision to implement the tax too hastily was a tactical error by Prime Minister Mark Carney’s government. The tax was initially projected to generate approximately $7.2 billion in revenue over five years, but after U.S. President Donald Trump terminated trade discussions over the issue, the Canadian government scrapped it.
Geist indicated that rather than rushing the implementation, Canada could have postponed the tax to use it as leverage in negotiations with the U.S. He noted that this abrupt move did not yield any benefits, with Canada ultimately returning to the negotiations without having gained any ground. By prematurely launching the tax, the government forfeited billions in potential revenue and missed an opportunity to negotiate better terms in ongoing tariff discussions.
"The timing of this is simply not great," Geist observed. He suggested that a deferral of about 30 days could have provided Canada a critical negotiating tool. By not taking a more measured approach, the government merely reverted to the prior status quo from just a week earlier, achieving little in terms of meaningful negotiations with the U.S.
Had the tax been enacted, Geist warned, Canadian consumers would likely bear the brunt of increased costs as U.S. tech giants like Amazon, Meta, Airbnb, Uber, and Google would likely have passed on the additional expenses to their Canadian customers. He highlighted that companies like Google had already started charging Canadian advertisers additional fees in anticipation of the tax.
Additionally, Geist criticized Canada's decision to withdraw from the Organization for Economic Co-operation and Development's (OECD) multilateral tax framework aimed at replacing digital service taxes imposed by individual countries. He expressed concern that Canada’s approach seemed to prioritize potential revenue over the integrity of international agreements, suggesting the government might have underestimated opposition from the U.S.
"The Canadian market just isn’t important enough, and the costs of some of these regulatory proposals are so high that they are going to invite a response," Geist stated. He emphasized that the government has often viewed tech firms as a source of revenue rather than fostering a collaborative regulatory environment.
Meanwhile, Frank McKenna, a former Canadian ambassador to the U.S. and deputy chair of TD Bank Group, commented that the uncertainty inherent in negotiating with President Trump complicates such discussions. McKenna acknowledged that from a strategic perspective, the Canadian government likely determined that preserving a trillion-dollar trade deal was worth more than the two billion dollars expected from the digital services tax. He remarked that this situation represents a trend of unpredictability associated with Trump's negotiating style.
Reflecting on changes in diplomatic relations, McKenna noted that the current negotiating environment is markedly different than during previous administrations, which were characterized by more respectful dialogues. He recognized the digital services tax as an initiative aimed at achieving fairness among tech giants but admitted it had its flaws and encountered resistance from both U.S. corporations and parts of the Canadian business community.
As trade talks resume, McKenna advised patience and caution. He emphasized the importance of valuing the potential outcomes of negotiations, given the substantial economic ties between Canada and the United States. He concluded by reiterating that negotiations require careful management of complex interpersonal dynamics, especially in the current climate.
