Canada has rescinded its digital services tax in a bid to advance trade negotiations with the United States, days after US President Donald Trump called off talks in retaliation for the levy. Canadian Prime Minister Mark Carney and Trump have now agreed to resume trade negotiations, with a view to agreeing on a deal by July 21, 2025.
According to Carney, “Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit in Kananaskis.” The Canadian levy on technology firms had been set to go into effect, but Trump said the tax, targeting “our American Technology Companies”, was “a direct and blatant attack on our Country”.
The digital services tax was designed to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians. The levy was set at 3 percent of the digital services revenue a firm takes in from Canadian users above $20 million in a calendar year, with payments retroactive to 2022. It applied to online marketplaces, social media platforms, digital advertising, and the sale or licensing of user data.
Canada’s finance ministry said the collection of the tax will be halted and Finance Minister François-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax (DST) 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 statement said. “Canada’s preference has always been a multilateral agreement related to digital services taxation.”
Canadian tech journalist Paris Marx told Al Jazeera that Carney’s decision to drop the levy shows Trump that “Canada can be pushed around”. “Multinational tech companies do not pay their fair share of tax in Canada and the digital services tax is designed to address that,” said Marx, who hosts the Tech Won’t Save Us podcast. “It has been continually delayed for years in the hope that a diplomatic process in the OECD would create an international framework to ensure those companies pay more tax in countries around the world.
But the United States, under [former US President Joe] Biden and Trump, has ensured it’s been unable to move forward,” he added. “More countries are enacting digital services taxes for that very reason, and Canada is wrong to back down.”
Canada is the second-largest US trading partner after Mexico and the largest buyer of US exports. It bought $349.4 billion of US goods last year and exported $412.7 billion to the US, according to US Census Bureau data. Canada had escaped Trump’s broad tariffs imposed in April but faces 50 percent duties on steel and aluminum.