Canada has officially scrapped its Digital Services Tax (DST), hours before the measure was set to take effect, in a bid to revive stalled trade talks with the US and ease escalating tensions.
The announcement came late Sunday when Canada’s Department of Finance announced it would suspend enforcement of the DST and move to repeal the measure through legislation. The payments were scheduled to start on Monday, June 30.
The decision follows a sharp breakdown in discussions on Friday, when US President Donald Trump abruptly pulled out of trade negotiations, describing the tax as a “blatant attack” on American tech companies.
Canada’s Finance Minister François-Philippe Champagne said the reversal reflects a broader effort to secure a comprehensive economic and security agreement with Washington. “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” he said in a government statement.
Trump and Carney set July 21 deadline
Canada’s Prime Minister Mark Carney and President Trump have agreed to resume negotiations, and set a July 21 deadline to reach a potential deal. Canadian officials underscored that any agreement must protect domestic workers and businesses.
“In our negotiations on a new economic and security relationship between Canada and the United States, Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” Carney said in a statement.
Why the digital tax sparked a backlash
The DST was first announced in 2020 as a 3% levy targeting revenue from large tech firms delivering digital services to Canadian users. It applied retroactively to earnings from 2022 onward and was projected to raise billions in new revenue. Companies with more than $20 million in annual Canadian revenue were subject to tax, including Alphabet, Amazon, Meta, and Apple.
The measure drew immediate backlash in the US, where officials argued it unfairly singled out US-based corporations and breached Canada’s commitments under the US-Mexico-Canada Agreement (USMCA). In August last year, trade officials launched formal consultations challenging the legality of the DST.
President Trump’s administration had made it clear that the DST would be a deal breaker. On the social platform Truth Social, Trump posted last Friday: “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.”
Behind the scenes, pressure was also mounting on Prime Minister Carney as Canada’s economy remains heavily dependent on exports to the US. According to the Office of U.S. Trade Representative, bilateral trade reached more than $760 billion in 2024, with Canada buying $349 billion in American goods and exporting $412 billion back across the border.
Finance Minister Champagne is expected to introduce legislation in Parliament to formally repeal the DST Act in the coming days. Meanwhile, President Trump, who claimed “the US holds all the cards,” is likely to maintain pressure as the July 21 deadline approaches.
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