Canada Abandons Digital Services Tax Following Termination of U.S. Trade Discussions by Trump Administration
Canada has decided to withdraw its digital services tax in anticipation of a beneficial trade agreement with the United States, which was announced just before the first tax payments were due. This change follows U.S. President Donald Trump’s declaration over the weekend that he would be terminating all trade discussions with Canada due to the newly imposed digital services tax targeting American tech companies. Canadian Prime Minister Mark Carney stated that this announcement aims to resume negotiations aligned with the July 2025 timeline established at the G7 Leaders’ Summit.
The digital services tax, enacted last year and retroactively applied to 2022, was set to collect payments from both domestic firms and foreign giants like Amazon, Google, and Meta, imposing a 3% levy on their revenues generated from Canadian customers. This decision represents a significant shift for Canadian officials who previously indicated a commitment to the tax despite U.S. opposition. Canada’s Finance Minister, Francois-Philippe Champagne, emphasized that rescinding the tax would help advance negotiations for a new economic and security relationship with the U.S., aiming to boost job creation and overall prosperity for Canadians.
However, the finance ministry highlighted that while Canada is willing to negotiate, the government remains resolute that a fair deal cannot drag on indefinitely. The digital services tax was initially introduced to close a taxation loophole for large tech companies benefiting significantly from Canadian markets without facing appropriate taxation. Following Trump’s announcement, U.S. Treasury Secretary Scott Bessent stated that an investigation would take place to assess the impact of the tax on U.S. companies and the economy.
Bessent noted that while various countries possess similar taxes, only Canada’s tax has been retroactively applied, raising concerns about discrimination against American companies. According to the U.S. Trade Representative, bilateral goods trade with Canada amounted to roughly $762 billion last year.