Canada blew off the Trump Administration's pleas to postpone enacting a Digital Services Tax (DST) while trade negotiations were ongoing. It barged ahead and on June 20 enacted the bill that would impose a 3% levy on revenue – not profits – from digital services like online marketplaces, advertising, social media, and user data sales, targeting companies with global revenues $801 million and Canadian digital revenue above $14.8 million.
Effective June 28 – and more perniciously, retroactive to January 1, 2022 – the tax required a $2 billion payment by June 30 from U.S. tech giants like Meta Platforms (META), Google, Apple (AAPL), and Amazon (AMZN).
Despite U.S. pressure, Canada’s Finance Minister François-Philippe Champagne confirmed its enforcement, prompting President Trump to call off all trade negotiations with Canada on June 27. He called it a “blatant attack” on American tech companies and threatened tariffs within seven days.
Prime Minister Mark Carney said Canada would conduct negotiations "in the best interests of Canadians," but the DST was rescinded on June 29, in a bid to resume trade talks.
The DST’s revenue-based structure, coupled with its retroactive nature, posed significant financial burdens for U.S. tech giants, with varying impacts based on their Canadian revenue and business models.
Meta Platforms is reliant on digital advertising for 98% of its $170 billion in trailing revenue. It faced a substantial hit as Canada, with 19 million daily Facebook and Instagram users (50% of the population), generates an estimated $4 billion to $5 billion in ad revenue annually, according to Statista.
The 3% DST would have cost Meta $120 million to $150 million yearly, plus $240 million to $300 million retroactively for 2022 to 2024. With operating margins in Canada at around 10%, the tax could have eroded profitability, potentially forcing ad price hikes or reduced marketing spend.
The DST’s rescission spared Meta these costs, boosting its stock, which is 2% in premarket trading today, but with the tax potentially delayed, it could renew pressure.
Alphabet’s (GOOG, GOOGL) Google, dominant in online advertising (Google Ads, YouTube), would have faced a hefty burden. Canada accounts for around 3% of Alphabet’s $359 billion in trailing revenue, or roughly $9 billion, with 70% from ads.
The DST could have imposed $270 million annually and $540 million retroactively. Google’s search and cloud services, less directly taxed, offered some buffer, but its ad-heavy model was vulnerable.
The Tax Foundation estimated U.S. firms, led by Google, would bear 90% of the DST’s $2 billion cost. The tax’s cancellation likely stabilized GOOGL’s outlook,and its stock is up 1.5% in early morning trading.
Amazon’s marketplace and advertising segments, key DST targets, faced significant exposure. Canada’s $60 billion e-commerce market in 2024, with Amazon holding a 40% share (around $24 billion), plus $2 billion in ad revenue, could have triggered a $780 million annual tax and $1.56 billion retroactively. Amazon’s 5% marketplace margins made the tax particularly painful, though it could pass costs to sellers or consumers.
The DST’s rescission likely alleviates pressure on AMZN’s stock, up 0.5% post-announcement, but tariff threats remain a concern.
Apple’s App Store and services – Apple Music, iTunes,and Apple TV – would be subject to the DST and generate $3 billion to $4 billion in Canadian revenue (2% of Apple's $388 billion global haul). The tax would have cost $90 million to $120 million annually and $180 million to $240 million retroactively.
Apple’s 25% service margins provide some resilience, but additional Canadian App Store regulations could have compounded costs. The DST’s cancellation likely reinforced AAPL’s stability, and AAPL stock is up 0.7% premarket.
While the tax’s cancellation eases immediate financial pressure, European countries are considering similar levies. Canada could always reimpose the tax, too. Trump's leverage with tariffs, though, gives him a big stick to beat back these attacks.
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