Canada Scraps Digital Services Tax

OTTAWA (Reuters) – Canada scrapped its digital services tax targeting U.S. technology firms late Sunday, just hours before it was set to take effect, aiming to advance stalled trade negotiations with the United States.

Canadian Prime Minister Mark Carney and U.S. President Donald Trump will resume trade negotiations to agree on a deal by July 21, according to Canada’s finance ministry statement.

Trump abruptly halted trade talks on Friday over the tax targeting U.S. tech firms, calling it a “blatant attack.” He reiterated his stance on Sunday, vowing to set a new tariff rate on Canadian goods within a week, jeopardizing U.S.-Canada relations.

This breakdown follows the leaders’ G7 meeting in mid-June, where Carney mentioned their intent to finalize a new economic agreement within 30 days.

Canada’s digital tax was set at 3% of the revenue firms generate from Canadian users beyond $20 million annually, with payments retroactive to 2022. It would have affected U.S. companies like Amazon, Meta, Alphabet’s Google, and Apple.

As per the finance ministry statement, collection due Monday will be halted, and Finance Minister François-Philippe Champagne will introduce legislation to repeal the Digital Services Tax Act.

“The DST was introduced in 2020 to address the tax obligations of large technology companies operating in Canada,” the statement said, adding, “Canada prefers a multilateral agreement on digital services taxation.”

Following the news of the tax’s repeal, stocks index futures rose, with positive sentiment spilling into Asian markets.

Canada remains the second-largest trading partner of the U.S. after Mexico and the largest buyer of U.S. exports. In the past year, it purchased $349.4 billion in U.S. goods and exported $412.7 billion to the U.S., according to U.S. Census Bureau data.

The Biden administration sought trade dispute settlement consultations over the tax in 2024, citing inconsistencies with Canada’s North American trade obligations. Canada had previously avoided Trump’s broad tariffs from April but now faces 50% duties on steel and aluminum.