Canada Withdraws Digital Services Tax to Unblock Trade Talks with the U.S.

Author: M.J. Gdnus

Canada last night revoked its planned digital services tax, which had targeted U.S. tech giants, just hours before it was scheduled to take effect — in an effort to revive stalled trade negotiations with the United States.

According to Canada’s Ministry of Finance, Canadian Prime Minister Mark Carney and U.S. President Donald Trump will resume trade talks, aiming to reach a new agreement by July 21.

Trump abruptly halted the talks on Friday over the tax, calling it a "blatant attack" on American tech companies. On Sunday, he reaffirmed his position and announced that he would introduce a new tariff on Canadian goods within the week, threatening to plunge U.S.-Canada relations back into crisis following a period of relative calm.

The negotiations stalled after the two leaders met at the G7 summit in mid-June, where Carney stated they had agreed to finalize a new economic agreement within 30 days.

The proposed Canadian digital services tax (DST) would have imposed a 3% levy on revenues generated from Canadian users by companies earning more than $20 million annually, with retroactive application starting in 2022.

This tax would have particularly affected U.S. tech giants such as Amazon, Meta, Google, and Apple, among others.

Canada’s Ministry of Finance announced that the tax collection — which was to begin on Monday — will be suspended, and that Finance Minister François-Philippe Champagne will propose legislation to repeal the Digital Services Tax Act.

“DST was announced in 2020 to address the fact that many large tech companies operating in Canada would otherwise not pay taxes on revenues generated from Canadians,” the statement reads. “Canada has always prioritized a multilateral agreement on the taxation of digital services.”

Stock index futures rose following the news of the tax withdrawal, with the optimism spreading to Asian markets.

Canada is the United States’ second-largest trading partner, after Mexico, and the largest buyer of American goods. Last year, it imported $349.4 billion worth of goods from the U.S. and exported $412.7 billion to the U.S., according to data from the U.S. Census Bureau.

The Biden administration had requested trade consultations in 2024 over the tax, arguing that it violated Canada’s commitments under the North American trade agreement.

In April, Canada avoided broad Trump-era tariffs but still faces a 50% tariff on steel and aluminum.