In a stunning development that shook North American trade diplomacy, President Donald Trump announced on Truth Social that the United States is ‘terminating ALL discussions on trade with Canada’ in retaliation for Ottawa’s implementation of a digital services tax, DST, targeting US tech firms. Trump, known for his aggressive trade posturing, condemned Canada’s move as ‘copying the European Union’ and labelled the tax ‘egregious.’ He went further, warning that ‘Canada will know the Tariff they will be paying to do business with the United States of America within the next seven-day period.’
Trump’s retaliatory tone reflects the US government’s longstanding position: that digital services taxes unfairly target American companies and violate principles of international trade. Canada, like several European countries, argues that the tax is necessary to ensure that large digital platforms — despite having little physical presence — pay a fair share of taxes based on the revenue they earn from local users.
This tax-versus-fee debate reveals a deeper global dilemma: how should countries collect revenue from digital services that transcend borders, evade traditional tax rules and dominate local markets? The rationale is clear: these multinational digital platforms (such as Google, Facebook (Meta), Amazon, and Apple, among others) generate substantial advertising and data-driven revenue from users in countries where they often have minimal physical presence and pay little or no corporate income tax. From the perspective of these governments, the DST helps capture fair tax revenue from economic activity occurring within their borders.
But this seemingly straightforward idea has ignited international controversy, especially between the United States, where most of these tech giants are headquartered, and countries such as Canada, France and the UK, which have either implemented or proposed such taxes. At the heart of the dispute lies a fundamental question: Should revenue generated from digital services be taxed like traditional economic activity, or should platforms be free to monetize global users without country-specific tax obligations?
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The case for digital services taxes
SUPPORTERS of DST argue that traditional corporate tax structures are ill-suited for the digital economy. Tech platforms can generate billions in ad revenue from user engagement in a country without owning property, hiring local staff, or maintaining offices there. Consequently, they avoid income tax liability under current rules.
A DST — typically levied as a 2–3 per cent tax on gross revenue generated from digital ads, online marketplaces, or user data — is seen to restore equity and sovereignty. European countries and Canada argue that local governments should not be deprived of tax revenue simply because the product is digital.
DSTs are government-imposed levies on corporate revenue, whereas user fees are platform-driven charges passed directly to consumers.
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The US response: protection or power play?
THE United States has vehemently opposed these taxes, viewing them as discriminatory trade measures aimed squarely at American companies. In 2020–21, the US Trade Representative launched Section 301 investigations into several DSTs, threatening retaliatory tariffs on imports from countries like France, Austria, and Spain. These threats were suspended under an OECD-led negotiation for a global digital tax framework.
From Washington’s perspective, unilateral DSTs violate global tax norms and amount to protectionist policies targeting US innovation. Critics of this view, however, argue that the US is protecting its corporate champions at the expense of international tax justice, even as those companies exploit the global user base for profit.
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Could user fees replace taxes?
AN ALTERNATIVE approach is being floated: rather than governments taxing digital services, what if platforms simply charged users a flat monthly fee?
To illustrate, if Facebook (Meta) were to charge $1 per user per month, with roughly three billion monthly active users, it could generate about $3 billion per month — or $36 billion annually, a figure that rivals or exceeds the tax revenue targeted by DSTs in many countries.
But this approach raises another set of questions:
Would users, especially in developing countries, accept or afford such fees?
Would it reduce user engagement, advertising effectiveness, and overall revenue?
And if users are paying directly, would platforms be more accountable to them rather than to advertisers?
Charging even a modest user fee could also produce a global information divide. In many low- and middle-income countries, millions rely on free digital platforms for access to news, education, and civic information. Introducing fees — even as low as $1 — could result in large segments of the global population becoming less informed, less engaged, and more isolated from national and international developments. What is framed as a revenue solution could, in effect, become a barrier to knowledge and civic participation.
Turning digital services into a private utility through user fees may make business sense — but it risks undermining the concept of a ‘free and open’ internet.
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What if tech giants strike back?
ONE possible but rarely explored scenario is this: what if digital platforms retaliate against DST-imposing countries by blocking access to their services?
This hypothetical move would trigger a cascade of consequences, including:
Disruption for businesses, creators, and consumers, especially small enterprises relying on platforms like Facebook, Instagram, Google Ads, or Amazon.
Strong public backlash, pressuring governments to reconsider DSTs or negotiate swiftly.
Diplomatic tensions that could escalate into retaliatory tariffs or accusations of digital imperialism.
An opening for local or geopolitical rivals, particularly Chinese tech firms like TikTok, WeChat, or Alibaba, to fill the void.
Acceleration of a fragmented ‘splinternet,’ where access to digital services depends on regional politics.
Risk of antitrust lawsuits — particularly in the EU, where blocking access could be seen as anti-competitive behaviour.
While blocking may be a tempting threat, the actual cost to both sides would be high — making negotiation, not exclusion, the more viable long-term solution.
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The OECD framework and global compromise
THE OECD’s two-pillar approach aims to address these very tensions. Pillar one seeks to reallocate taxing rights for large multinationals to the countries where users and customers are located. Pillar two establishes a global minimum corporate tax to prevent tax base erosion.
While negotiations have been slow, they represent the best hope for a coherent, enforceable, and fair global tax solution. Canada and others have agreed to delay enforcement of their DSTs while the OECD process unfolds, but deadlines loom. If global consensus fails, unilateral DSTs and US trade retaliation could return with full force.
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Global commons or global monopoly
AT ITS core, the debate over digital service taxes is about how to govern the digital commons — whether they serve as private monopolies for profit or shared infrastructures subject to public oversight and contribution.
As governments seek revenue and corporations seek market dominance, the path forward must balance tax fairness, access equity and innovation. Whether through DSTs, user fees, or multilateral tax reforms, the goal must be to ensure that the global digital economy is sustainable, inclusive, and accountable — not just to shareholders, but to the citizens whose data, attention, and lives fuel the digital economy.
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Dr Abdullah A Dewan is a former physicist and nuclear engineer at BAEC and is professor emeritus of economics at Eastern Michigan University, USA.
