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Canadian Government Caves on Digital Services Tax After Years of Dismissing the Risks of Trade Retaliation
After years of dismissing the warnings of likely retaliation, the Canadian government caved last night on the digital services tax. Faced with the prospect of the U.S. suspending trade negotiations, Finance Minister François-Philippe Champagne announced that the government would drop the DST altogether, payments scheduled for Monday would be cancelled, and legislation will be forthcoming to rescind the legislation that created it in the first place. Over the weekend, I wrote about the repeated warnings that the DST was a serious trade irritant with the U.S. that cut across party and presidential lines. While ignoring the risks was bad enough, I argued that Canada played its DST card too early. Rather than delaying implementation in the hopes of incorporating it into a broader trade deal with U.S., it marched ahead, leading to an entirely predictable response from U.S. President Donald Trump. That left Canada in a no-win situation: stick with the DST but face the prospect of higher tariffs or embarrassingly drop the DST (and $7.2 billion in revenue over five years) with only restarting negotiations that were on until government overplayed its hand to show for it.
Ignoring the Warning Signs: Why Did the Canadian Government Dismiss the Trade Risks of a Digital Services Tax?
U.S. President Donald Trump announced yesterday that he was suspending trade negotiations with Canada due to the imminent implementation of the digital services tax (DST). The result could be increased tariffs on Canadian products and a stalemate on many of the current trade battles between the two countries. This result should not come as a surprise. Indeed, the prospect of a trade war over the DST has been readily apparent for years. In my Law Bytes podcast episode in May on Canadian digital policy under Prime Minister Mark Carney, it was the top short term issue (I did not anticipate burying lawful access in a border bill).
Just prior to Trump’s inauguration in January, I wrote:
Why Bill C-2 Faces a Likely Constitutional Challenge By Placing Solicitor-Client Privilege at Risk
The government’s inclusion of warrantless information demand powers in Bill C-2 has attracted mounting concern, particularly the stunning decision to target everyone who provides services in Canada which creates near limitless targets for warrantless disclosure demands. Department of Justice officials have confirmed that Bill C-2 extends far beyond just telecom companies to services such as financial institutions, car rental companies, and hotels. The inclusion of professional services that frequently face strict confidentiality obligations deserves greater scrutiny as the approach virtually guarantees a constitutional challenge alongside the challenge on privacy grounds in light of the previous Supreme Court of Canada rulings in Spencer and Bykovets.
The implications for the legal community, who face strict solicitor-client confidentiality requirements, are particularly notable. Under Bill C-2, lawyers could be compelled to confirm whether they have provided services to client, whether they have information about the client, and when they provided the service, including when a person became a client. If they are aware of other service providers, they must provide that information as well. These disclosure demands come without a warrant or court oversight and lawyers could be barred from advising their clients about the demand for a year. Lawyers would undoubtedly seek to challenge the demand, but would only have five days to do so.
Lawful Access on Steroids: Why Bill C-2’s Big Brother Tactics Combine Expansive Warrantless Disclosure with Unprecedented Secrecy
Earlier this week, I wrote about how the government’s inclusion of warrantless information demand powers in Bill C-2 may make this the most dangerous lawful access proposal yet, exceeding even the 2010 bill led by Conservative Public Safety Minister Vic Toews. The post emphasized the broad scope of the information demand power. Unlike prior lawful access proposals that targeted telecom and Internet companies, Bill C-2 targets anyone that provides a service to the public. This could include physicians, lawyers, accountants, financial institutions, hotels, car rental companies, libraries, and educational institutions. The list literally never ends. Each of these service providers could be compelled to confirm whether they have provided services to any subscriber, client, account, or identifier. They must also disclose whether they have any information about the subscriber, client, account or identifier as well as advise where and when they provided the service. On top of that, they must advise when they started providing the service and list the names of any other person that may have provided other services. All without a warrant or court oversight.
Department of Justice officials provided a briefing on the provisions yesterday and confirmed this reading of the bill. Officials acknowledged that Bill C-2 extends far beyond just telecom companies to services such as financial institutions, car rental companies, and hotels. When asked about hospitals, physicians, and other health professionals, the officials affirmed that they were covered as well (officials claimed that there would still be the need for a criminal investigation, but that is incorrect since this applies to any Act of Parliament, not just the Criminal Code).
Government Reverses on Privacy and the Charter: Department of Justice Analysis Concludes Political Party Privacy Bill Raises No Charter of Rights Effects
The Department of Justice has released its Charter Statement for Bill C-4, the affordability measures bill that also exempts political parties from the application of privacy protections on a retroactive basis dating back to 2000. The provisions give political parties virtually unlimited power to collect, use and disclose personal information with no ability for privacy commissioners to address violations. Charter statements are designed to identify Charter rights and freedoms that may potentially be engaged by a bill and provide a brief explanation of the nature of any engagement, in light of the measures being proposed. The Bill C-4 Charter statement is notable for its brevity:
The Minister of Justice has examined Bill C-4, An Act respecting certain affordability measures for Canadians and another measure, for any inconsistency with the Charter pursuant to his obligation under section 4.1 of the Department of Justice Act. This review involved consideration of the objectives and features of the Bill. In reviewing the Bill, the Minister has not identified any potential effects on Charter rights and freedoms.
Recent Posts
Canadian Government Caves on Digital Services Tax After Years of Dismissing the Risks of Trade Retaliation 
The Law Bytes Podcast, Episode 238: David Fraser on Why Bill C-2’s Lawful Access Powers May Put Canadians’ Digital Security At Risk 
Ignoring the Warning Signs: Why Did the Canadian Government Dismiss the Trade Risks of a Digital Services Tax? 
Why Bill C-2 Faces a Likely Constitutional Challenge By Placing Solicitor-Client Privilege at Risk 
The Law Bytes Podcast, Episode 237: A Conversation with Jason Woywada of BCFIPA on Political Party Privacy and Bill C-4
