Canada drops digital services tax to revive trade talks with US

Canada has scrapped its controversial digital services tax targeting major US technology firms late on June 29, mere hours before it was due to come into effect, in a bid to revive stalled trade negotiations with the United States.

Prime Minister Mark Carney and US President Donald Trump are set to resume talks aimed at reaching a new trade agreement by July 21, Canada’s finance ministry said, Caliber.Az reports via foreign media.

Trade negotiations were abruptly halted on June 27 when President Trump criticised the tax as a “blatant attack”, adding on June 29 that he would introduce a new tariff rate on Canadian goods within the next week. The threat raises concerns of a renewed trade dispute between the two neighbours, after a period of relative stability.

The fallout follows a meeting between the two leaders at the G7 summit in mid-June, where Carney stated both sides had agreed to finalise a new economic deal within 30 days.

Canada’s planned digital services tax (DST) was set at 3 per cent on revenues earned from Canadian users by digital companies with annual Canadian revenues above $20 million. The tax was designed to apply retroactively from 2022 and would have affected firms such as Amazon, Meta, Alphabet’s Google, and Apple.

According to the statement, collection due to begin on June 30 will now be halted, and Finance Minister François-Philippe Champagne will introduce legislation to formally repeal the Digital Services Tax Act.

“The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians,” the ministry said. “Canada’s preference has always been a multilateral agreement related to digital services taxation.”

The announcement prompted a rally in stock index futures, with the bullish sentiment also lifting Asian markets.

Canada is the United States’ second-largest trading partner after Mexico and the top buyer of American exports. In 2024, Canada purchased $349.4 billion worth of US goods and exported $412.7 billion to the US, according to US Census Bureau figures.

The Biden administration had previously requested formal consultations on the matter, arguing the DST contravened Canada’s obligations under the United States-Mexico-Canada Agreement (USMCA).

While Canada avoided the sweeping tariffs imposed by Trump in April, its steel and aluminium exports currently face duties of up to 50 per cent.

By Sabina Mammadli