On Sunday, the Canadian government announced it would withdraw its planned Digital Services Tax (DST), just hours before it was scheduled to come into effect. The move is widely seen as a calculated effort by Prime Minister Mark Carney’s administration to ease tensions with the United States and restart stalled trade negotiations.
The DST, which had been in development since 2020 and passed into law in 2023, would have imposed a 3% tax on large multinational digital companies, many of them based in the U.S., including Amazon, Google, Meta, and Apple. It targeted firms earning over $20 million annually from Canadian digital services such as online ads and e-commerce, and it was set to be applied retroactively to 2022. Had it gone ahead, companies would have been required to pay an estimated $2 billion in back taxes starting Monday, June 30, 2025.
The timing of the decision, coming so close to implementation, suggests a deliberate diplomatic gesture from Ottawa. Tensions between Canada and the U.S. had been rising, especially after President Donald Trump condemned the tax as unfairly targeting American businesses. Just days earlier, Trump had suspended trade talks, threatening retaliatory tariffs on Canadian exports if the tax was enforced.
In a statement, Canada’s Finance Ministry explained the repeal was intended to create space for renewed economic discussions. Both governments are now aiming to finalize a new trade agreement by July 21. The sudden shift appears to have revived those efforts, with negotiations reportedly back on track.
President Trump responded positively, calling the withdrawal a win for U.S. businesses and a step toward restoring trade cooperation. He reiterated that the U.S. would not tolerate what he called discriminatory measures against American firms and confirmed that economic talks with Canada would resume immediately. Talks had previously broken down following the G7 summit in mid-June, where he and Carney had agreed on a 30-day timeline for reaching a new trade deal.
For U.S. tech firms, Canada’s reversal comes as a major relief, averting billions in unexpected tax liabilities. The Biden administration had already raised objections in 2024, launching consultations over whether the DST breached the North American trade agreement.
From Canada’s side, the decision underscores the importance of maintaining strong economic ties with its southern neighbor. The U.S. remains Canada’s largest export destination and second-largest overall trading partner after Mexico. In 2024 alone, Canada exported over $412 billion in goods to the U.S. and imported nearly $350 billion.
Canada had narrowly avoided new U.S. tariffs earlier in the year but continues to face steep duties—up to 50%—on its steel and aluminum exports. Finance Minister François-Philippe Champagne is expected to introduce legislation to formally repeal the DST Act soon. The ministry emphasized that while Canada still supports the idea of a global approach to digital taxation, the priority now is bilateral economic stability.
