Canada has chosen not to implement a Digital Services Tax aimed at large tech companies in order to resume US trade talks.
On Friday, US president Donald Trump threatened to end negotiations on tariffs, citing the tax, which had been due to come into force today (30 June).
The decision comes ahead of a 21 July tariff deadline agreed at this month’s G7 summit, after which US tariffs on Canadian goods are set to come into effect.
Tax U-turn
The 3% levy, which would have hit US tech firms like Google parent company Alphabet, Meta and Netflix, was nixed today.
On Friday, Trump threatened to end trade talks with Canada, describing the country as “difficult” and “nasty” to deal with, over the weekend.
Speaking to Fox News yesterday (29 June), he said that the talks would not take place until “such time as they drop certain taxes”.
The tax would be levied on tech firms taking in more than $20m in revenue from Canadian users per calendar year.
It was due to be applied retroactively, beginning in 2022. At the end of 2023, Canada’s parliament estimated the tax would raise C$7.2bn over five years.
Canadian response
Canadian political leadership have said they chose to walk back the tax in order to pursue the country’s best economic interests.
Canadian prime minister Mark Carney said that his administration will “always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses”, and that ditching the tax facilitates the “resumption of negotiations”.
His finance minister, François-Philippe Champagne, said that:
“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the US to make vital progress”.
Canada currently sends over 75% of its exports to the US, with oil and cars being its largest exports south of the border. Canada has been hoping to reduce the 25% tariffs placed on all exports of cars and steel into the US through talks.
US tariffs of 25% have been levied on Canada since February; however, these have been repeatedly suspended.
Setback
The tax prompted Trump to “terminate” Canadian trade talks on Friday (27 June).
Posting on his social media platform, Trump said that Canada is “a very difficult Country to TRADE with”.
“[It] has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country”.
US treasury secretary Scott Bessent described the tax as a holdover from Carney’s predecessor Justin Trudeau’s premiership, which was marked by significant acrimony towards Trump. Speaking to CNBC, he said the US administration was hoping that Carney would “at least put a brake on” the tax during trade talks.
Although Carney led Canada’s Liberal party to victory on a wave of increased anti-US sentiment following tariff threats, he’s taken a firm but conciliatory stance with Trump since entering office.
Digital tax trend
Multiple countries have proposed similar taxes targeting revenue generated by Silicon Valley tech giants through users based in their jurisdictions.
Amid ongoing trade talks with the EU, Trump has repeatedly singled out the bloc’s taxing of US tech firms, part of its 2022 Digital Market Act (DMA), highlighting it as a major non-tariff barrier that disadvantages US firms.
Last week, European Commission president Ursula von der Leyen said that, while many tariff and non-tariff barriers were up for discussion in order to reach a trade deal ahead of a 9 July tariff deadline, she would still protect the “sovereignty of the decision-making process in the EU”.
The Wall Street Journal reported a few days earlier that a draft agreement between the two trading partners was almost ready, with exemptions for US tech firms from the DMA included.
The UK operates a similar tax to that proposed by Canada, instead levying 2% on “search engines, social media services and online marketplaces which derive value from UK users”.
Although not included in the US-UK Economic Prosperity Deal agreed in May, UK prime minister Sir Keir Starmer has said that there are “ongoing discussions” with the US about the tax.
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