Canada has officially withdrawn its planned Digital Services Tax, a move intended to revive high-stakes trade negotiations with the United States after President Donald Trump suspended talks last week in retaliation for the levy. The decision, announced Sunday by Finance Minister François-Philippe Champagne, follows days of diplomatic strain between Ottawa and Washington and signals an effort to reset the dialogue ahead of a new economic and security agreement.
The tax, initially introduced in 2020, was scheduled to come into effect on Monday and would have imposed a 3 percent levy on revenue generated from Canadian users by large technology firms with digital services earnings over $20 million annually. The measure would have applied retroactively to 2022 and targeted sectors such as online marketplaces, social media platforms, digital advertising, and the licensing or sale of user data.
Prime Minister Mark Carney, speaking from Ottawa, stated that rescinding the tax was necessary to “support a resumption of negotiations toward the July 21 timeline” set during the G7 Leaders’ Summit in Kananaskis. President Trump had previously called the levy “a direct and blatant attack on our Country,” citing it as the reason for halting discussions. Trump’s administration considers digital services taxes a form of non-tariff trade barrier aimed disproportionately at American companies, including tech giants like Apple, Amazon, Alphabet, and Meta.
Canada’s preference has long been to address digital taxation through a multilateral agreement under the OECD framework. However, prolonged delays in international negotiations prompted Ottawa to introduce its own DST legislation. Despite the domestic justification, the decision drew sharp criticism from U.S. officials and business leaders, prompting retaliatory rhetoric from Trump, who has already imposed 50 percent duties on Canadian steel and aluminum earlier this year and threatened further tariffs on exports.
Canadian officials now hope that eliminating the tax will help rebuild momentum in trade discussions with the U.S., which remains Canada’s largest trading partner. In 2024, Canada imported $349.4 billion worth of American goods and exported $412.7 billion to the United States, according to U.S. Census Bureau data. With a looming July 9 deadline for numerous countries to avoid reciprocal tariffs, the window for securing exemptions or renegotiated trade terms is narrowing.
Critics argue that rescinding the tax under U.S. pressure undermines Canada’s efforts to ensure digital companies pay their fair share. Tech journalist Paris Marx said the move signals to Trump that “Canada can be pushed around,” noting that multinational platforms continue to underpay in many jurisdictions where they generate significant profits.
Nonetheless, the Canadian government maintains that the decision serves the broader national interest. Finance Minister Champagne confirmed that legislation will soon be introduced to officially repeal the Digital Services Tax Act. Carney emphasized that the government remains committed to defending Canadian workers and businesses while building a stronger and more integrated economy within the G7.
As talks resume under the revised timeline, both governments face a compressed window to hammer out the terms of what could become a defining trade agreement of the Trump-Carney era. The outcome may shape not only the economic relationship between the two nations but also set precedents for handling digital taxation and cross-border commerce in a rapidly evolving global market.
Sources:
Government of Canada, Al Jazeera, CNN, US Census Bureau