Photo by Ken Lund on Flickr licensed under CC BY-SA 2.0:https://bit.ly/3VIdhPJ

On Wednesday, June 19, the Canadian parliament enacted a law to impose taxes on digital services companies that will disproportionately impact U.S. firms.

Bill C-59, the Digital Services Act (DST), imposes a 3% tax on large tech companies with over 803 million USD in annual revenues. Another law, Bill C-69, subjects those companies to a 15% minimum effective corporate tax.

Canada’s Department of Finance says the measure is a placeholder for multilateral trade agreements in the digital services sector. The DST is supposed “to protect the interests of Canadians” until such an agreement has been negotiated. In the interim, the act imposes a de facto tariff on Canada’s biggest trade partner, the U.S.

The United States and Canada have the world’s most comprehensive trading relationship. In 2022, the total value of U.S. trade with Canada was $908.9 billion, of which $46.7 billion was from digitally enabled services exports. Canada’s protectionist digital services legislation now puts this sector under pressure.

The U.S. Chamber of Commerce and the American Chamber of Commerce in Canada released a statement on Friday, June 21, objecting to the DST. It says that “Canada is forging ahead with a retroactive and discriminatory digital services tax” that “would disproportionately harm U.S. companies, undermine digital exports, harm Canadian innovation, and contravene Canada’s obligations under both the U.S.–Mexico–Canada Agreement (USMCA).”

U.S. politicians have also weighed in, with House Ways and Means Chairman Jason Smith saying, “America will not stand quietly by while Canada embraces discriminatory taxes on Americans that undermine the U.S. economy.”

The DST is only the latest of several Canadian laws targeting U.S. companies. Others include the Online Streaming Act and the Online News Act, both intended to discriminate against non-Canadian digital service and content providers.

The Biden Administration must step up against these discriminatory measures that hurt the American economy and workers, especially from its single largest trade partner and treaty ally, Canada.