The Canadian government on Sunday announced it would withdraw its contentious Digital Services Tax (DST) just hours before it was set to take effect. The decision is seen as a strategic move by Ottawa to revive stalled trade negotiations with the US government and avert a potential escalation in economic tensions.
What was the digital services tax?
The DST was a 3% levy targeting large multinational digital companies, particularly U.S.-based tech giants like Amazon, Google, Meta, and Apple. The tax applied to firms generating more than $20 million in annual revenue from Canadian sources through digital services such as online advertising and e-commerce. It was retroactive to 2022, meaning companies would have faced backdated payments totaling an estimated $2 billion. While the tax was initially proposed in 2020 and passed in 2023, actual collections were scheduled to begin on Monday, June 30, 2025.
The sudden reversal is widely interpreted as a diplomatic olive branch from Prime Minister Mark Carney’s government amid increasingly strained ties with the United States. Trade negotiations between the two countries had collapsed just days earlier, after President Donald Trump denounced the DST as a “blatant attack” on American companies. Trump warned of retaliatory tariffs on Canadian goods if the tax proceeded as planned. Canada’s Finance Ministry said in a statement that the decision to repeal the DST was aimed at “reinvigorating economic discussions” with the United States, with both sides now aiming to finalize a new trade deal by July 21.
Trump’s reaction and the broader implications
President Trump welcomed the move, framing it as a political and economic victory. “We will not allow our companies to be unfairly targeted,” he said during a Sunday press briefing, adding that trade negotiations would resume immediately. Trump had previously halted discussions following the G7 summit in mid-June, where he and Carney had initially agreed to conclude a new economic pact within 30 days. Sunday’s breakthrough puts those plans back on track.
For US, the DST’s cancellation avoids a costly blow to the tech industry, which would have shouldered billions in unexpected tax liabilities. The Biden administration had already raised objections in 2024, launching trade consultations over concerns that the DST violated North American trade agreement commitments.
From Canada’s perspective, the decision helps preserve critical economic ties. The United States is not only Canada’s top export market, but also its second-largest trading partner overall after Mexico. In 2024 alone, Canada exported $412.7 billion worth of goods to the U.S. while importing $349.4 billion, according to U.S. Census Bureau data.
Canada had narrowly avoided sweeping U.S. tariffs earlier this year but is still subject to 50% duties on its steel and aluminum exports. Canada’s Finance Minister François-Philippe Champagne is expected to introduce legislation to formally repeal the Digital Services Tax Act in the coming days. In a statement, the ministry emphasised that Canada’s “preferred solution has always been a global framework for taxing digital services,” and that the repeal does not abandon that goal but instead prioritizes bilateral stability.