Canada Dumps Digital Services Tax to Restart U.S. Trade Talks

By Mindi Soren

In a swift reversal of policy, Canada has officially withdrawn its 3% Digital Services Tax (DST) targeting foreign tech companies, including U.S.-based giants like Google, Meta, Amazon, and Apple. The decision comes just hours before the tax was set to take effect, in response to President Donald Trump’s public condemnation and a halt in bilateral trade negotiations.

A Tax On Hold

The DST, which became law in June 2024 and was retroactive to revenue generated beginning January 1, 2022, was scheduled to go into effect on June 30, 2025.

It imposed a 3% tax on revenue from online marketplace services, advertising, social media, and the sale of Canadian user data—applying to companies with over €750 million in global revenue and at least C$20 million from Canadian users.

Political Backlash Sparks Reversal

President Trump condemned the DST as a “blatant attack” on American companies, calling off trade negotiations and threatening retaliatory tariffs on Canadian goods.  Canada responded by pausing collections and announcing plans to repeal the DST through upcoming legislation.  Prime Minister Mark Carney and President Trump have since agreed to resume trade talks, targeting a comprehensive agreement by July 21.

Official Statements And Criticism

Finance Minister François‑Philippe Champagne explained Canada enacted the DST as a temporary solution while awaiting a multilateral digital tax framework but now views its removal as necessary to advance the trade agenda.

The U.S. National Economic Council’s Kevin Hassett confirmed the reversal allows for the immediate resumption of negotiations.  Business groups like the American Chamber of Commerce in Canada praised the move, while some Canadian legal experts lamented the lack of strategic coordination and haste.

International And Domestic Context

The DST was inspired by similar taxes in Europe, where multiple countries have applied levies on digital services revenue to counter profit-shifting and ensure tech firms pay their fair share.  Unlike Europe's continued multilateral efforts, Canada’s unilateral approach invited direct U.S. ire—including tariff warnings that inflicted serious economic pressure.

Economic Stakes And Next Steps

The DST had been forecast to generate roughly C$7.2 billion over five years, now forfeited in favor of diplomatic leverage. With steel, aluminum, and auto tariffs still hanging over Canada, the repeal is seen as a key confidence-building measure to unlock broader trade and security discussions.  Canada has committed to introducing legislation in Parliament to formally eliminate the DST, while working with international partners toward a coordinated global digital tax regime.

Broader Implications

The episode shines a light on the delicate balance between national sovereignty, economic protection, and international cooperation—particularly under pressure from more powerful trade partners.  It serves as a cautionary tale for other nations weighing unilateral digital tax policies against the risk of diplomatic retaliation.

Bottom Line

Canada’s decision to rescind the DST marks a dramatic, last-minute policy shift under U.S. pressure, prioritizing the resumption of trade talks and a wider economic pact by July 21. Whether Canada’s political gamble will yield broader gains in trade fairness—or undercut its fiscal position—remains to be seen. The action underscores the importance of multilateral solutions in governing digital economies in an interconnected world.

Mindi Soren is a freelance journalist and writer for Veritas Expositae

You can reach her at mindi.soren@veritasexpositae.com